11 MAY, 2022

Rajesh availed a home loan to buy his dream home but soon after, he realised that his Equated Monthly Instalment (EMI) was higher than he could afford. While he was struggling to make ends meet and not default on his EMI payments, he came to know that his colleague had availed a home loan at the same terms and parameters but at a much lower rate. Disappointed, he sought help from his uncle who was a financial advisor. Thankfully, his uncle had faced a similar situation a few years ago and thus suggested that he opt for a balance transfer. After researching the option, Rajesh could avail a new loan at a lower interest rate. If you are a home loan borrower, you would be delighted to know about home loan balance transfer.

 

What is a home loan balance transfer?

A balance transfer is a facility where you can transfer or switch your home loan from one lender to another. The new lender repays your old loan and asks you to pay the remaining loan amount to them at a lower EMI as per the new interest rate. When you transfer the loan, it is similar to availing a new loan. Therefore, you need to complete all the formalities and paperwork to switch your loan. Moreover, you must meet the eligibility criteria of the new lender.

 

What are the benefits of home loan refinance?

 

  • Reduced interest rate

Even a slight change in the home loan interest rate can amount to significant savings over the long term. By transferring your home loan, you can reduce your interest rate and save on your EMI. You might also be able to switch from a fixed to a floating interest rate.

 

  • Restructure the loan

Many lenders allow you to change your tenure with refinancing. You can opt for a longer tenure to repay the loan with lower EMI comfortably or opt for a shorter tenure to further reduce the interest outgo.

 

  • Better facilities

If you are not happy with the present lender, switching your loan is a good option. You can switch your home loan with a lender that has better facilities and customer service. Moreover, you can get facilities like top-up loans and doorstep services with the new lender.

 

Things to consider when you switch the loan

 

  • Transfer cost

You might have to pay different costs for transferring your loan like processing fees, prepayment cost, etc. Therefore, check the overall transfer cost before switching the loan. It would be best to use a home loan balance transfer calculator to know your savings and make an informed decision.

 

  • Eligibility and terms

Before you switch the loan, ensure to check the terms and conditions of the home loan. The new lender might have different eligibility criteria. Ensure to read the fine print carefully to avoid any nasty surprise in the future.

 

  • Remaining tenure

It would be best to switch your loan at the beginning of the tenure to get the maximum benefit. Your interest payout is the highest in the beginning. If you switch at the end of tenure, you would hardly be able to save much.

 

A home loan balance transfer can help you save money. However, you need to do a cost-benefit analysis to ensure it is beneficial for you.

 

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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.