21 SEPTEMBER, 2022

Every individual has dreams and aspirations in their lives that push them to be better. One of those dreams is buying a home where their loved ones can live happily. But many tend to step back due to limited funds, as investing in a home is a costly affair. Everyone cannot pay the whole amount in one go. But once you have purchased it, it is a major achievement in your life. To ease financial challenges, most households trust the financing options with banks, like home loans, personal loans, and credit cards that can be availed by all at a point in time. A home loan can help individuals to own their homes. Individuals look for the best home loan deal while deciding on the lending institution.

There are many people who have messed up with their finances due to the absence of the correct information at the right time. Maybe you did not research well before taking a home loan, and later you came to know that you are paying much. Here, additional products such as Top Up and Loan Balance Transfer can help. As a smart financial move, borrowers avail of a top-up loan with regards to home financing or transfer their home loans. A top-up loan is the financial assistance above your existing loan. The Home loan top up interest rate will be impacted by your repayment history. Transferring home loan to another bank is an easy process, but there are a few aspects that must be considered before starting the process.

What Is Loan Balance Transfer?

A loan balance transfer is a process of shifting the loan account from one lending institution to another. In this process, the total outstanding amount is paid to the lender, and the new lending institution sanctions a new loan amount. Usually, the interest rate offered by a new lending institution is lower than the existing one, which is the driving factor for a loan balance transfer.

The primary function of transferring the balance amount is to reduce the EMI amount. However, the process of transferring the loan amount is chargeable.  One needs to assess all the probabilities before choosing a new lender properly. Lending institutions charge a nominal fee for all the services. Home loan transfer charges include foreclosure of loan, processing fee, and stamp duty charges for the loan agreement.

Top 7 Mistakes to Avoid While Transferring Home Loan to Another Bank

To take full advantage of a loan balance transfer offer, you should be aware of the following aspects:

1. Interest Calculation

Most borrowers opt for Home Loan Balance Transfer to decrease the interest rate as a home loan is a loan availed with a long tenure. The loan Balance Transfer facility aims to save on the loan at lower interest rates. When RBI announces reduced interest rates in the economy, lenders also reduce interest rates but at different scales. In such situations, the home loan balance transfer is an attractive option, mainly when unsatisfied with the existing services. A lower interest rate will definitely come easy on the pocket but make sure you do not transfer the loan without interest calculations for the new chosen loan tenure. The total interest for a longer tenure will increase. So, it is necessary to compute the total repayment amount before transferring loan to another bank.

2. Credentials of the Lender

Lending institutions may attract you by offering a loan with many benefits. Each lender has different policies concerning loans. Before signing that dotted line in the agreement, research the credentials of the institution properly and know the lender’s reputation in the market. Read the testimonials online. Do not forget to get acquainted with the conditions applied to the loan terms offered.

3. Rate and Type of Interest

While you compare the interest rate with different lenders, make sure you also compare the type of interest rate they apply to their home loans. It can be a fixed or reducing method to calculate the interest rate. Fixed interest rates cost you more than reducing interest rates. Reducing interest rates may or may not change in future depending on the market fluctuations. Therefore, it is necessary to know the type of interest rate before transfer.

4. Processing Fees and other Charges

There are a few expenses associated with the process - balance transfer fee, processing costs, stamp duty, and other allied charges. The lender may consider the type of income to levy a fee. For example, a salaried individual may need to pay different charges than a business person. The borrower should ask the lender about these charges. It will let you know the real savings with a balance transfer to a new loan.

5. Foreclosure Charges

If you have a spare amount, you may want to repay the loan partially to close the loan account soon. You should ask the new lender about foreclosure charges, whether it will levy these charges before proceeding with the balance transfer.

6. Timing of Balance Transfer

It is a common mistake made by most borrowers. Transferring a loan at the end of tenure may increase the financial burden of the loan. It would be best to transfer the loan within the first half of the loan duration. If you have already repaid half of the loan, it is better to wait till the loan maturity.

7. Correct Loan Amount Transfer

Once you transfer a loan balance, you must check the entire balance transferred from the old account, and the balance is at zero. Such mistakes may lead to damage to your credit score if your old account is still open for any fee.

Home Loan Transfer Process

- First, check your eligibility for a home loan balance transfer.

- Get a No Objection Certificate (NOC) from your existing lender. You may need to submit a letter to your existing lender mentioning you are transferring your loan to the new lender.

- Now, get a statement for repayments and the outstanding for the loan to be submitted to the new lender.

- The new lender will transfer funds to your existing lender so that it can close your loan. In return, the old lender will transfer the original property documents to your new lender. Make sure you receive the cancelled cheques from your previous lender.

- Now fill in your personal details, financial details, property details, and employment details in the application form with the new lender.

- View your loan offer and make the payment.

- Upload your documents - identity and residence, income proof, and signature proof.

- You can check if a home loan balance transfer with top up facility is available for you.

This way, you can make wiser choices. You can use a Home Loan Balance Transfer Calculator to calculate your EMI on existing loans and check the savings upon transferring your home loan.

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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.

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.