17 MARCH, 2022

Home loans are financial products that are significantly affected by economic factors. Say, for instance, if you avail a home loan at floating interest rates, you could see changes in its rates every year. It is also a fair possibility that after a few years of you availing a home loan, the interest rates have dropped significantly, but you are stuck with the old rates, paying a higher EMI than other borrowers. Lenders provide an easy solution to this: home loan balance transfer. Lenders allow you to transfer your home loan to a different lender if it helps you save money or get better deals. However, it is not as simple as it sounds. Though home loan balance transfer can help you get lower interest rates and save money, you should consider certain factors while doing so. Read on to find out more.


What is a balance transfer?

A balance transfer is a facility where you can switch your lender. With home loan refinance, you can foreclose the existing loan and avail a new loan with a different lender. In home loan refinance, the new lender pays off your existing loan, and you then pay the remaining EMIs to the new lender at their terms.


Factors you should consider before transferring your loan


  • Negotiation with your lender

Before applying for the home loan balance transfer, you must negotiate with your existing lender for the interest rates and better services. If they are ready to negotiate, you can save on the cost of transfer and continue with them. 


  • Remaining tenure

You must transfer the loan only when a higher loan amount is remaining. Most of the interest component is paid at the beginning of the tenure. Therefore, if you have only a few years left on the tenure, you could pay more than you save by the transfer. Experts suggest that you should transfer the loan in the initial years to save on the interest cost. In addition, the tenure of the new loan should be kept the same as the remaining years of the current loan.


  • The difference in interest rates

The purpose for which you could transfer the loan is to reduce the overall interest cost of the loan. Therefore, you must carefully analyze the cost involved compared to the savings. Lenders consider transfer loan applications as fresh applications, thereby following all the procedures of a new home loan application. You must factor in all the costs like processing fee, administration cost, etc. while comparing it with the savings you make by transferring. Using a home loan balance transfer calculator can help you do a cost-benefit analysis for the same.


  • Property approval

Each lender has different parameters to approve your property based on their procedures and approved list. Therefore, you will be able to switch your loan only when the new lender approves your property as well. Check with the lender about the approval. If your property is not disputed, you should not face any issues in getting approval.


Though the transfer balance facility can help you reduce home loan interest rate, you must consider these factors. Opting for the home loan refinance should not be a hassle that consumes all your time and effort.

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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.