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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.
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 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-
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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