Will My Home Loan Insurance Get Transferred if I Opt for a Home Loan Balance Transfer?
Nowadays, most new home buyers avail the facility of a Home Loan while purchasing a new residential property. This is largely due to the high prices of the residential properties across India due to which personal savings fall short of the amount that is required to finalise the purchase. Applying for a Home Loan is a wise decision in most conditions and offers significant benefits to you such as:
- Low-Interest Rates: Home Loans are now being offered by most lenders at highly competitive interest rates starting from 8.40%. This is significantly cheaper than any other available mode of finance.
- High Lon to Value (LTV): Most lenders offer up to 80% value of the property as Home Loan, this reduces the amount of money required from your side as margin money.
- Extended Repayment Period: The maximum available period for Home Loan repayments now extends up to 30 years, which makes EMIs (Equated Monthly Instalments) more affordable for you.
- Top-up Loans: Most lenders offer the facility of high-value top-up loans along with Home Loans to help you manage your financial liabilities effectively.
- Income Tax Benefits: Interest paid on Home Loan EMIs is eligible for Tax deduction U/s 80C of Income Tax Act.
- No Foreclosure Charges: You have the option to repay your Home Loan before the completion of tenor, as your financial situation improves, without any foreclosure charges.
But, the fact of the matter is that as the duration of Home Loans extends up to 30 years, then a slight reduction in interest rates can result in substantial savings. Due to aggressive competition in the finance sector, lenders are now offering low-interest rates on Home Loan Balance Transfer which will not only reduce your EMI amount but would also help you save a lot of money on interest payment.
What is a Home Loan Balance Transfer?
When you Apply for a Home Loan Balance Transfer, it implies that you are closing your existing loan account and would be transferring it to a new lender, who is offering you lower interest rate and better terms.
The need for a Home Loan Balance Transfer arises when you have been serving your existing Home Loan for some time,but due to some policy change or due to competition, there is a reduction in the interest rates of the Home Loan. In such a situation you would be serving higher rate of interest in comparison to the prevailing rates in the market. In such a case, you can opt for Home Loan Balance Transfer to a new lender, who is offering lower interest rates, in order to reduce the amount of your EMIs and also save on the interest expenses. There could be some other reasons behind balance transfer such as dissatisfaction with the existing lender, availability of a top-up loan, unfavorable terms and conditions, and so on.
The fact of the matter is that Home Loan Balance Transfer is an excellent choice but only if you take the decision after thorough research and due diligence.
Transfer of Home Loan Insurance with Home Loan Balance Transfer
In most cases, when you avail a Home Loan, the lender usually asks you to avail a Home Loan insurance policy. Though the premium of this policy has to be borne by you, the real benefit of the policy is availed by the lender. This insurance policy acts as a security cover for the lender against any untoward or unwanted incident that may happen to you. If due to any reason whatsoever, natural or man-made, you are unable to repay your EMIs, then the insurance company will reimburse the bank for the remaining EMIs of the loan amount.
If you opt for a Home Loan Balance transfer, you have to consider the implications of this decision on your Home Loan Insurance Policy. Read further to understand the impact of this decision for you,i.e., the borrower:
- Although the insurance policy was sold to you through the lender, the insurer is a separate entity from the lender and your relationship with the insurer is independent of the lender.
- The decision to continue or discontinue the said Home Loan insurance policy is entirely yours and should be taken into consideration with the new lender if it is willing to accept your existing home loan insurance policy.
- If you have decided to discontinue your existing policy, you must close the policy with the present insurer. Then you need to inform your new lender regarding the same and get a new Home Loan insurance policy conforming to their requirements.
- If you have decided to continue with your existing policy, then you must inform the insurer regarding the change in the status of your Home Loan and ask them to make the new lender as the beneficiary.
When you opt for a Home Loan Balance Transfer, you must pay due attention to your Home Loan insurance policy also. You need to make sure that your home loan is covered by the policy under all circumstances so that if anything untoward was to happen to you, the insurer would reimburse the lender for the unpaid EMIs.
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