There has been seldom such a dynamic phase for Home Loan customers as the last few months. Whilst on one hand, home loans in particular and interest rates in general have seen unprecedented softening (from an average of around 9.75% to around 8.5%). On the other hand customers have to factor in fundamental changes such as lenders moving from Base Rate to MCLR apart from evaluating competing home loan and transfer options, that offer to potentially reduce loan burden.
Much has been written about most of these topics and even reported on various media. However, for a typical home loan customer, there is always a need to understand basic changes in simple terms, thereby allowing one to comprehend and if need be to course correct. With this perspective, the article attempts to simplify the Home Loan Balance Transfer and top up process using a FAQ approach.
Ideally home loan customers should keep a tab on interest rates on a quarterly or half yearly basis, or at times of known major policy announcements by the government or the RBI to enjoy Home Loan Transfer benefits.
If one understands the home loan process, players and dynamics, one could start engaging with their existing home loan provider to understand if the rates are competitive.
For this, it is important to study the competitive rate offerings, product features and all relevant terms and conditions of other similar lenders.
Armed with such bench marked information, one could engage with existing home loan provider and explore possibilities of rationalizing their interest rates by marking to competition. You can also use a Home Loan Balance Transfer Calculator for the same.
It may be possible that one may not have the time or resources to track such a rapidly changing market and one way could be to seek assistance from third party financial services distributors such as mymoneymantra, whose core business is to study competing loan parameters, dynamics and ecosystem on regular basis and offer competitive products to their customers.
Whilst the process of Home Loan Balance Transfer could vary from lender to lender, usually, one could start by applying for the same with a competing lender / provider and submit all the documents which are typically required for a Home Loan sanction including but not limited to Proof of Identity, Address, Income Profile, Property title, Primary lender Home Loan contracts etc.All this will help know your Home Loan Balance Transfer eligibility.
Usually all competing lenders/providers also conduct their processing which may require anywhere from 2-3 weeks, post which a confirmation of the acceptance of proposal is sent to customer.
Thereafter one needs to inform one’s existing lender and get a letter stating the exact loan outstanding amount.
Then the competing lender pays off the original lender and obtains the property papers from the latter and the new EMI payment regime starts. Usually this process could take upto two weeks.
Once the loan is closed by one’s previous lender, typically after 10–15 days, the property documents are released to the new lender and consequently the Home Loan stands completely transferred to the new lender.
In the present scenario where interest rates have fallen from about 9.75% to 8.5%,the savings on monthly EMI could be anywhere between 10% and 12%, obviously subject to type of loan, age of the primary loan, loan corpus, repayment completed and track record of the same etc.
This is illustrated in the example as below, wherein for a typical 1 Crore loan, the pre and post interest rate scenarios are detailed. In this example, for instance, with appropriate assumptions, an illustrative reduction of upto 13% is possible on the home loan monthly EMI.
|Loan Amount||INR 1 Crore|
|Rate of Interest (%)||10.5|
|New Rate Of Interest (%)||8.5|
|Old EMI (INR/Month)||99,838|
|New EMI (INR/Month)||86,782|
|Reduction in Monthly EMI||INR 13,056|
Calculate your Home Loan Balance Transfer savings by clicking on Balance Transfer Calculator
Usually every new Home Loan has an entry cost, which is usually charged upfront in terms of processing or administrative fees.
Whilst this is applicable on Home Loan Balance Transfer’s as well, there are instances wherein the competing lender reduces these fees or gives offers to alleviate the transfer costs. Though such offers vary from bank to bank.
However, even after banks and lenders reduce processing fees or subsidize them, it is possible that the Valuation and admin charges of the respective lender may still be payable by customer.
At one level a Home Loan Balance Transfer is a useful way by which the Home Loan burden could be rationalized, especially in a downward interest rate regime. However, it still requires one to devote significant amount of time and resources to understand, undertake and complete the process. It is also important to hold all the threads together till the loan is fully transferred to the new lender. Typically third party advisers such as mymoneymantra make it their core business to hand hold such transaction end to end keeping the best interest of their customers in mind by sifting through a bouquet of loan and interest options, and offering ones which are most appropriate for specific customers, without any additional cost to the customers.
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