14 JANUARY, 2022

You might research well to find the best lender and maintain a high credit score to get the lowest interest rates on a home loan. However, interest rates could drop after a few years.

Thankfully, you have the option of a balance transfer. With a home loan balance transfer facility, you can transfer the loan to get a lower interest rate and save money. However, reduction in interest rates should not be the sole reason to transfer the loan. You must know when it is the right time to transfer the loan. Read on to find out.

What Is a Home Loan Balance Transfer?

A home loan balance transfer is a facility where you can transfer your home loan from one lender to another. When you opt for a balance transfer, the new lender repays the outstanding loan amount to the old lender in full. Once your loan is closed with the existing lender, you can repay the remaining EMIs to the new lender at their interest rates. The following are the benefits of opting for a home loan balance transfer.

  • You can get lower interest rates on your home loan by transferring the loan. It can help you reduce the interest outgo and thus save money.
  • You can also change the loan terms and restructure your loan. By transferring the loan, you can increase or decrease your tenure to change your EMI.
  • You can also get better features or services if you are not satisfied with your existing lenders. Many lenders provide top-up loan facilities on home loans.

Things You Must Consider While Transferring Your Loan

While balance transfer can help you save, it is not true in all cases. You must carefully analyze all aspects before you transfer the loan. Here are a few things that you must consider.

  • Are you eligible?

You must ensure that you fulfil the new lender’s eligibility before you apply for home loan refinance. Over time, your credit score can drop or the new lender could have different eligibility. Therefore, before you apply for a loan transfer, check the eligibility.

  • What is the difference in interest rates?

To ensure that you save by opting for a home loan refinance, you must check the difference in the interest rates of both lenders. Experts believe that you must transfer the loan when there is a difference of at least 50 base points in the interest rates.

  • How much tenure is left?

It is usually not a wise decision to transfer the loan in the later years of the tenure. It is because, until that time, you have paid a major portion of the interest component of the repayment amount. Therefore, you must transfer the loan in the initial years of the loan.

While you transfer the loan, you must assess the cost of refinancing to check your savings. You can use a home loan refinance calculator to ensure that you would save money by transferring the loan. If the cost of transfer is more than the total savings, it would be better to stick to the existing lender.

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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.