Whether it’s buying your primary home or looking for a second home (weekend home) or just an investment in residential real estate, home loans are a stepping stone towards that goal. There are multiple factors that need to be looked at – ranging from eligibility to rate of interest, a good credit score and much more. In the last one year, the Reserve Bank of India has put in several efforts to stabilize inflation, thereby increasing the repo rate six times by a total of 250 bps, which has resulted in higher interest rates on home loans. Lenders tried every possible way to provide schemes, waivers and preferential rates to customers in the last financial year, which created an opportunity for a home loan balance transfer.
What does a Home Loan Balance Transfer mean for the customer?
Also known as Home Loan Refinancing, it allows you to transfer your existing home loan to another lender who offers a better interest rate, leading to a reduction in monthly interest payments. Customers usually find it tough to shift from one lender to the other as they are used to a certain process and ecosystem. It’s like telling a loyal Apple phone user to shift to an Android phone. Is transferring from one lender to the other easy? Yes, and the best part is that it can even be done online without any hassles. However, you need to caution yourself to the various terms and conditions that the lender may have ranging from processing fees, pre-payment charges, penalties, late fees, and most importantly, what are the long-term benefits that you are getting out of it and are they in line with your larger financial goals.
Is it a smart move? What are the benefits?
Before we get into the benefits, the first step is thorough research. Evaluate the pros and cons before making the move. Now coming to the good part which are the benefits of home loan balance transfer. The first and foremost is Lower Interest Rates. While it may be a minor drop (could be even 0.5%), there is a huge impact on monthly savings.
Let’s give you an example: A home loan of 40 lakhs taken for a period of 20 years at 10% IR per annum. Your EMI will be over 38,500 with total interest payable of over 52.5 lakhs. However, a 9.5% IR per annum will end up saving you almost 3.5 lakhs.
The second most important factor is the flexibility in Repayment Tenure. A longer tenure of home loan repayment can reduce the monthly pressures and improve cash flows. There are times when borrowers opt for a shorter loan tenure so that they can become debt-free as soon as possible but eventually their EMIs become a huge burden. Another very crucial benefit is the Top-Up Facility. This means you can borrow additional funds over and above your outstanding home loan amount.
These funds can be used for purposes such as home improvement, education, or other financial needs. Interest Rate Regime is an option which borrowers avail of, which could be either fixed home loan interest rates or floating home loan interest rates. With fixed, interest rates are lower as compared to floating as lenders are at a higher risk. However, customers who are adept at tracking the macroeconomic indicators prefer the floating interest rate option. No Pre-payment Charges and Hassle-free Documentation with most lenders is an extremely crucial point of evaluation.
All in all, a home loan balance transfer clearly has several benefits. However, the decision to transfer one's home loan must be taken after doing a proper cost-benefit analysis. It is important to carefully consider the associated costs, including processing fees, legal charges, and other administrative expenses. Additionally, conduct thorough research and comparison of various lenders' offers to ensure that the benefits of the balance transfer outweigh the costs involved.
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