11 MAY, 2022

If you have availed a home loan or are planning to apply for one, you must know about home loan transfer balance. With a home loan transfer balance, you can switch your home loan from one lender to another to get better terms or lower interest rates. Your old loan is foreclosed, and the new lender pays for the outstanding balance. You can then pay the remaining loan amount to the new lender at reduced EMI and interest rates. By transferring your loan, you can enjoy several benefits. You can get better interest rates, additional facilities and services and even restructure your loan. However, most borrowers switch their loans to get a lower interest rate. 

 

You can get better interest rates when another lender offers a lower interest rate than your current lender or when your credit score enhances during your tenure.

It would help to know how home loan balance transfer interest rates are calculated in India. Continue reading.

 

Understanding home loan balance transfer interest rates

 

The interest rate you get on refinancing your home loan is based on two components - markup rate and MCLR. MCLR, or Marginal Cost of Funds based Lending Rate, is the benchmark rate at which the home loan refinance interest rates are supposed to be linked. The interest rate which the lender charges is a sum of both these components.

 

MCLR

It is the lowest interest rate at which the banks can lend money to their customers. MCLR replaced the base rate as the benchmark to increase accountability and transparency. MCLR facilitates faster transfer of interest rate reduction to the customers and is periodically revised by the banks. The revision can reflect in the borrower’s interest rates.

 

Spread

Spread is an interest rate component that varies based on the borrower’s profile. It is a small percentage that is added to the MCLR rate. The combination of both is the actual interest rate levied on borrowers' home loan transfers. This spread varies based on the loan type and the borrower.

 

Factors that impact home loan refinance interest rates

Many factors affect your home loan balance transfer interest rates-

 

  • Interest type - Your interest rate could vary depending on a fixed or floating interest rate.
  • Loan value - If the outstanding loan value is higher, the interest is higher too, as the lender has to bear a higher risk.
  • Credit score - The higher the credit score, the better interest rate you can get on your home loan balance transfer.
  • Property location - If the property is based in a prime locality, you can get lower interest rates in transferring the loan. Such properties have high resale value and so are less risky for lenders.
  • Loan tenure- If the loan tenure is longer, you get higher interest rates and vice versa.

 

With a home loan balance transfer, you can save on interest outgo. Therefore, you must know how they are calculated. However, if you have doubts, it is best to approach an expert and take suggestions on the best ways to reduce your EMI.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.