22 MARCH, 2022

Home loans are a long-term commitment that often spans for decades. It can alter your monthly budget and purchasing capacity. This is why it is suggested to research carefully and consider all aspects before availing a home loan. But, what if, after a few years, interest rates are reduced? Should you continue to pay a high EMI? Certainly not.

One of the many ways to reduce your EMI is to transfer your loan. You can reduce your interest rates, get better deals and repay your loan faster with balance transfer. However, there are certain aspects that you must study before transferring.


If you were repaying a home loan, it would be helpful for you to know the factors that you should look at before transferring the loan.


What is a balance transfer?

A balance transfer is a facility where the lender allows you to switch your loan. In home loan refinance, you can transfer your loan from one lender to another for lower interest rates or better facilities and services. The new lender pays the existing loan, and you are required to repay the remaining loan at a different EMI as per the new lender. 


When should you transfer the loan?


  • When you meet the eligibility of the new lender

Every lender has different eligibility criteria. Before transferring, you must check the eligibility for the home loan as per the new lender as well. If you are eligible, you can apply for a home loan transfer. Moreover, it is crucial that the new lender also approves your property for a home loan.


  • When you get a lower interest rate

If you can find a lender that is offering you lower interest rates that reduces your EMI, you can transfer the loan. Even a slight reduction in the home loan interest rates can help you reduce your cost of borrowing significantly. However, experts believe that you must transfer when there is a difference of at least 25-50 base points in the interest rates.


  • When you get better facilities

You can also choose to switch your loan if you are dissatisfied with the current lender. You can switch your loan if you are getting better facilities on your home loan like a top-up loan, better customer services, etc. 


  • When a longer tenure is remaining

Typically, borrowers pay off a higher portion of the interest in the initial years of the loan. Therefore, you must transfer the loan when a longer tenure is remaining. Similarly, you must also ensure that a good chunk of the outstanding loan is left before you transfer the loan.


  • When you save more than you spend for the transfer

While getting a reduced interest rate is a noteworthy reason to transfer your loan, you must carefully ascertain the cost of the transfer. You will need to pay transfer costs, prepayment charges, etc., for switching the loan. You must do a cost-benefit analysis to ensure that you will save money by the home loan balance transfer.


Moreover, before you make a switch, study the interest rate policies, reviews and fine prints of the new lender. Also, ensure to compare the cost and savings from the transfer before proceeding with the transferring process.

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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.