3 Things You Should be Aware of Before Transferring Your Home Loan Balance
Home Loan Balance Transfer(HLBT) is primarily a facility, wherein you can transfer your existing Home Loan to another bank, for a lower interest rate or better auxiliary services. This facility has been introduced in a bid to benefit the customers so that they can avail cheaper loans, and save the money that would otherwise go towards the interest. While there are more than just a few banks which would be willing to offer you the service, while ensuring that you enjoy a lower interest rate, it may not always be the ideal thing to do. More often than not, the process of HLBT requires a fair amount of paperwork as well as a sizeable amount of time and efforts on your end. Given that time equals money in the modern-day economy, this facility may only be lucrative when you use it, with your eyes open.
To help you do just that, we have consolidated a short yet imperative list of three aspects that you must be aware of before opting for the much-coveted HLBT service.
1. Type of Interest
When it comes to Home Loans, most lenders offer two alternatives – Fixed Rate of Interest and Floating Rate of Interest.
If, when you first took the loan, you opted for fixed loan interest, and the market rates have dropped since then, Apply for Home Loan Balance Transfer can help in reducing the cost of your credit. In this case, however, you may need to opt for floating interest rates. While this alternative will lower your interest liability in the long run, it may put you in the comparatively tricky position of being unprepared for your upcoming equated monthly instalment (EMI), as it will fluctuate as per the changes in the market rates.
Then again, this route is only advisable for those who are in the initial phase of their Home Loan. For those who have already paid off the major chunk of the credit, HLBT might not be as financially viable or beneficial, as one would want.
2. The Difference in Interest Rate
The rate difference is one of the most important aspects that you should look out for if you are considering HLBT. If the drop in rate is a meagre 25 basis points, and you have already paid the better part of your Home Loan, you shouldn’t bother transferring the credit. If one the other hand, the differential is more than 50 basis points, and you are still in the nascent stages of repaying your Home Loan, you should consider the HLBT facility.
If you are unable to gauge the overall benefit that you will accrue over the years, then it is advisable for you to use a Home Loan EMI Calculator, and check the EMI as well as the total interest outgo for both, your existing Home Loan plan, and the new plan that you are considering. If you find the difference to be significant enough, you must transfer your loan to the lender which is readily offering you credit at a lower interest rate.
3. Additional Charges
For anyone to make the most of the Home Loan Balance Transfer facility, it is extremely crucial to know the extra charges levied by the current as well as the new lender. More often than not, the current lender would collect a prepayment penalty, which can be anywhere between 0.5% to 2.5% of the outstanding principal amount. Then again, the new lender would receive a processing fee, which is usually between 1% to 2% of the loan amount. Then there may be other charges such as the valuation fee, the legal fee, and the documentation fee amongst others. While these charges may be seemingly low, when combined they can pile up rather quickly. Hence, before you apply for Home Loan Balance Transfer, you should check, whether the facility will still prove to be beneficial for you, after paying these charges. Only if the answer is affirmative, should you go ahead with this move!
We hope that you are now aware of the aspects that you ought to consider while contemplating HLBT. If you still aren’t sure whether to go ahead with your decision, we recommend you get in touch with a financial advisor and seek assistance for the same.
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