16 JUNE, 2022

If you are servicing a home loan, you might feel that you are paying more Equated Monthly Instalments (EMIs) than you should over a prolonged tenure. While your EMI is dependent on various factors, this could be true if the interest rates of home loans have dropped down. In such a situation, to save your interest, you can opt for a balance transfer. After all, even a one percent difference in interest rates can save you a significant amount of money, and hence a home loan balance transfer can help you lower your cost of borrowing. However, while it looks alluring, promising you reduced rates, you must gather enough knowledge and details about it before you proceed. If you are new to home loan balance transfers, here is a handy step-by-step guide about the process. 

 

What is a home loan balance transfer?

A home loan balance transfer, or refinancing as it is also called, is a facility provided by lenders to transfer your loan to another lender. When you opt for a home loan refinance, the new lender pays your outstanding loan amount to the existing lender. Once your loan is closed, you can repay the remaining loan amount to the lender at their offered interest rates. By switching your loan, you can get lower interest rates, revised repayment terms, better services and facilities, top-up loan facility, preapproved offers, etc. 

 

A step-by-step guide to transferring your loan

  • Compare lenders before switching your loan. Compare their interest rates and consider the entire fee structure for the new loan
  • Negotiate with the existing lender for interest rate revision
  • Take the No Objection Certificate (NOC) and other important documents from the existing lender
  • Apply with the new lender and furnish the NOC and other documents to the new lender
  • Close the existing home loan
  • Pay the charges of availing a new home loan and repay at the new interest rate and EMI

 

Things to keep in mind while switching your loan

 

  • Cost analysis

While transferring your loan can help you save money, you must consider the cost associated with a home loan balance transfer. You might have to pay a foreclosure charge for closing your loan. You will also be required to pay the administration charges, processing fees, and other home loan charges to transfer the loan to the new lender. Hence, consider these charges and do a cost-benefit analysis while transferring your loan. 

 

  • Negotiate

Lenders want to retain their customers as losing a borrower can affect their business. Therefore, you can negotiate with the existing lender to revise your interest rate. If you have been diligent in repaying your EMIs, you might succeed and need not transfer your loan.

 

  • Remaining tenure and amount

If only a small amount of the home loan is left to repay, you might lose more money by transferring the loan. Usually, it is best to transfer the loan only when your loan is in the initial years. It does not make sense to incur transfer costs in later years as you have paid substantial interest already.

 

A home loan balance transfer can help you save a significant amount on your housing loan interest rate. However, you must make an informed decision after considering all the different factors and costs to get the best deal.

 

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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.