Is It Advisable to Apply for an HLBT if the Interest Rate Difference Below is 1%?
Still paying your Home Loan EMIs at double digit interest rates while current Home Loan offers bear single figure rates? No reason to be disappointed though! You could always go for a Home Loan Balance Transfer (HLBT). HLBT is a facility that allows you to transfer your outstanding loan amount to a different bank at an interest rate lower than what you are currently paying. Good credit history and timely EMI (Equated Monthly Instalment) payments for the current loan should make sure that you get the best rates for the balance transfer and that the whole transition process remains smooth and hassle-free.
Even while the prospect of a loan transfer seems too lucrative to resist, it is important that you ask a few important questions. What is the interest rate difference between the two loans? What is the threshold limit that the interest rate difference must exceed? Would applying for the Home Loan Balance Transfer make financial sense if the rate difference is less than 1%? Are there any other factors to be considered? What is the magnitude of the associated charges and how would (and should) it affect my decision?
What is the Minimum Interest Rate Difference That Makes HLBT Financially Feasible?
First things first, financial feasibility of HLBT does not merely depend on the interest rate difference. Factors such as the outstanding tenure of the loan, the unpaid amount to be transferred and the associated charges (processing fees, prepayment charges, and so on) play an equally important role in determining if the decision to transfer the loan would prove to be financially beneficial or not. Banks in India usually charge about 0.5 to 1.5% of your loan amount as the processing fees for the transfer. If you have already cleared more than about three-quarters of the total instalments, it won’t make sense for you to seek an HLBT.
The benefit acquired due to a reduced interest rate would more or less be offset by the processing fees, simply because there aren’t enough instalments for you to spread the associated cost across (and this is without even considering prepayment charges!). So even if the interest rate difference is more than 1%, you shouldn’t expect to enjoy monetary gains from a balance transfer Home Loan at the back end of the original tenure. Conversely, if you are, say, about 7-8 years into a 20 year Home Loan, even a 0.5% drop in the original interest rate would accrue financial gains for you. The total amount saved on account of interest payments would outweigh the processing fees and other associated costs if any.
For those who are in the initial stages of the tenure, it may prove difficult to Find a Home Loan Balance Transfer Offers at very low-interest rates as a major interest rate fluctuation in a very short period of time is highly unlikely. But don’t lose hope just yet! At MyMoneyMantra, you get the most cost effective HLBT offers in the market, with convenient repayment options, from the leading banks and other lending institutions in the country. With interest rates starting around 8.40%, you are bound to enjoy hefty savings on account of interest payments by applying for an HLBT online on mymoneymantra.com. With almost three decades of experience in the financial market, their team of experts and professionals know what works best for you and they strive to provide you with the most convenient and cost-efficient HLBT offers in the market.
Consider This Before Applying for an HLBT
Some HLBT schemes require you to pay a lower EMI amount but for a longer period of time. This option though may increase the total repayment amount because the interest would keep on adding to the outstanding principal amount. Even if the rate difference is greater than 1%, you may end up with little or no financial gains at all. In such cases, it is imperative for you to analyse and compare the total cash outflow for both Home Loan offers before you arrive at a decision.
However, if the bank intends to pass on the benefits of the reduced interest rate by either lowering the EMI amounts for the remainder of the tenure, or reducing the tenure of your loan and keeping the EMI constant, even a 50 or 75 basis points reduction in the rate of interest would hold you in good stead. A reduced EMI amount would increase your cash in hand every month whereas a shorter loan term would mean you get done with the loan repayments earlier without shelling out anything extra. An HLBT facility would be beneficial if you make substantial gains. Even if the interest rate difference is under 1%, you still stand to save a lot of money provided you go for it at the right time and with the right option.
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