The RBI decided to keep the current repo rate unchanged at 4% in 2021 to maintain its accommodative stance. Accordingly, new home buyers are now more encouraged to avail housing credit, owing to lower loan interest rates. On the other hand, existing borrowers consider this a viable opportunity to opt for a home loan balance transfer. Indeed, transferring an existing loan to a lender who levies a lower interest rate is an effective way to lower the debt burden.
Such a facility could help existing housing loan borrowers make the most of the repo cuts and further secure better terms of service. Nonetheless, to maximise the accompanying benefits, it is important to consider a few points in advance.
6 factors to consider before housing loan balance transfer
To ensure home loan balance transfer facilitates savings, individuals must weigh in these factors before proceeding.
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Transaction cost
Borrowers should find out the overall transaction cost to determine whether this facility will help save on loan repayment. To ascertain it, they should first find out whether their existing lender levies a foreclosure charge or not, and if so, how much. Simultaneously, they should check the processing fee of the new lender.
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Interest rate and additional charges
Most financial institutions advertise a lower home loan interest rate but make up for the same by levying several hidden charges. To avoid falling prey to such a situation, individuals must check two points right at the beginning.
First, whether the affordable interest rate is a short-term offer and second, the accompanying rates and charges. It is often recommended to choose a lender who is transparent when it comes to levying fees and hidden charges.
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Loan eligibility of new lender
Besides checking the home loan interest rate offered by the new lender, borrowers must find out their new loan eligibility. Generally, property cost comprises multiple heads like basic price, security charge, service tax, etc.
However, different lenders follow varying norms when it comes to including such headers. In case the new lender omits any of the previous headers, the home loan eligibility of the borrower could be questioned. This is why it is imperative to check loan eligibility beforehand.
With a home loan balance transfer calculator, borrowers can gauge their new loan eligibility and find details about top up loans. They could also use a home loan tax benefit calculator to determine how much they can save on their income tax post balance transfer.
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Interest and spread
The interest rate on loans with floating rates has two components, the benchmark rate and spread. In most cases, the benchmark rate keeps changing through the course of tenor; while, the spread remains unless in case of default.
However, some lenders tend to charge borrowers with a variable interest rate and spread, making the loan significantly expensive. To avoid such a situation, housing loan borrowers must ensure that the new lender does not follow the variable spread system.
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Additional features and facilities
To make the most of home loan balance transfer benefits, existing borrowers should look for HFCs who extend facilities like top up loans, loan foreclosure and part-prepayment. While a top up facility helps to account for additional financial requirements, foreclosure and part-prepayment facilitate better debt management.
Usually, leading HFCs also provide pre-approved offers to customer to help simplify the borrowing experience. Such offers expedite the approval process and help meet requirements readily.
One can avail such lucrative offers on multiple financial products like home loans and loans against property. Check your pre-approved offer online by simply entering your name and contact number.
Individuals should reconsider their decision to transfer loan towards the end of their repayment tenor as the transaction cost and processing charges may offshoot the cost of borrowing. In turn, such an outcome will defeat the primary purpose of a balance transfer, i.e., saving on loan repayment.
Besides these, individuals should maintain a record of timely EMI payment and keep all property-related documents ready to secure quick home loan balance transfer approval.
They should also factor in terms of services offered by the new lender before refinancing the loan.
