Home loans have become a very important product of banks and other home financing institutions. Each one is competing with the other to increase their market share. That is why; the borrowers or prospective loan borrowers find themselves surrounded by a plethora of offers on financing the home purchase. All these offers are rolled out to make the home loan borrowing the easiest as well as the fastest. Home loan transfer is considered by most borrowers to meet contingencies and unforeseeable conditions.
Such competitive market conditions definitely call for in-depth research and evaluation of offers and alternatives available. But, in spite of utmost care taken at every step, the borrowers may find difficulty managing home loan from their financial institution. Thankfully, there is freedom of switching home loans that help in managing the situation rather favourably for the borrower. Let’s try to understand how home loan transfer works, why one should transfer home loan and evaluate the pros and cons of the entire home loan transfer process.
Why to go for home loan transfer
The primary motive of switching home loans from one lender to another is saving on cost. The home loan interest rates are subject to change. These changes are introduced as per new repo rates announced and according to other economic conditions developed in due course. Home loan financing companies allure the borrowers on pretext of changing interest rates and encourage them to go for floating interest rates so that they can benefit from the rates lowered down in future. But, the borrowers may not wait for a condition which is too unsure to happen. So, they may contemplate home loan balance transfer to other companies that have lower interest rate structure.
Some borrowers consider going for home loan transfer to get better credit rating. If all the payments to the current lender is made on time and without defaulting on any ground whatsoever, the new lender generates the credit rating of the borrower on positive side. This rating is quite useful for the borrower on various grounds in future.
There are certain loan companies that offer top-up facility on the existing loan. If due to some reason, the borrower needs to cash this top-up facility, they require transferring the home loan.
When is the right time for home loan transfer?
Switching home loans is not the right option if you have already spent more than five years with the present lender. It is because the interest component is in the higher side during the first five years of the loan. Thus, the decisions regarding home loan balance transfer should be taken during the first few years only to derive maximum benefit out of the situation.
Secondly, home loan balance transfer works the best when the difference between the interests of the two home loan financing companies should be appreciably large. The companies offering the best home loan rates treat the home loan transfer case as the fresh loan application. Thus, a variety of charges like survey charge, etc in addition to home loan transfer charge should be accounted for to find out the final cost applicable.
How home loan balance transfer is done
Here is the stepwise procedure for switching home loans:
Step.1: Procure all documents demanded by the new financing entity from the existing lender. Also, get the NOC (no objection certificate) from the existing home loan lender.
Step.2: The current lender will provide you outstanding loan amount figure and all documents as required by the new home loan financing company/bank.
Step.3: The outstanding of the existing lender is paid in full by the new loan financing company which you have chosen for home loan transfer.
Step.4: The loan account with the existing lending company is closed and the new relationship starts with the new financing institution to which all future payments will be made by you.
Step.5: The transfer of property documents from old lender to new lender will then take place marking the completion of the transfer home loan process.
Benefits of home loan balance transfer
Home loan balance transfer process allows the borrower to take advantage of low cost of loan which is made possible due to low interest rates offered by new lender. If the principal amount remaining is too large and only one or two year of the loan term has passed, then this low interest reduces the overall cost quite appreciably.
Secondly, if the services of new home loan provider are better than existing one, the customer tries to buy better peace of mind by deciding to transfer home loan.
The borrower may ask for longer loan term when switching home loan to new lender. Thus, the borrower can spread the liability to repay the loan over longer period. It helps when the borrower is going through some financial crisis and wants to buy some more time to consolidate the liabilities.
Things to consider before switching home loans
Making an informed decision is the best thing that you can do when it comes to transferring home loan. There are certain charges and conditions that should be taken into account while deciding about home loan transfer. These points worth considering are:
- Charges applicable for switching home loans: The home loan balance transfer process involves various charges like penalty on home loan consolidation imposed by the current lender, administrative fees charged by new lender, application processing charges, home loan transfer charges, to name a few.
2. Remaining term and remaining amount of the loan: If the remaining term of the existing loan is quite small, it is better to stick to the current lender. Also, the remaining amount should be sufficiently large. The EMIs should have started within one year.
3. New home loan rate: The home loan interest rate offered by the new lender should have lucrative outcome. It should be at least 1-2% low to offer appreciable cut on the overall cost.
To conclude, if you want to enjoy the best home loan rates available in the market, or want to buy some more time for consolidating home loan or just want to enjoy more cut in the home loan cost, the home loan balance transfer is the best decision. Think about your priorities, evaluate your decision on all grounds and then take a cognitive decision; you surely will make the best of this situation.