A home loan transfer is a facility that enables you to transfer the balance of your loan to another lender. The primary purpose of a balance transfer is to avail of a lower rate of interest from the new lender.
Some of the points to consider before you opt for a balance transfer:
Interest Rates On The Home Loan
Centralized financial institutions offer interest rates on their loans based on the MCLR. The Marginal Cost of funds based Lending Rate (MCLR) is the minimum rate of interest below which lenders cannot sanction loans. They add a spread – a marginal rate in addition to the MCLR before offering them to the borrowers.
Now, NBFCs and housing finance companies don’t sanction home loans based on the MCLR. They determine interest rates based on competition and market conditions. Hence, one may offer cheaper rates compared to other financial institutions and this makes home loan transfer lucrative.
- Base Rate
Another point to note here is that the MCLR only came into effect from 1st April 2016. Before that, financial institutions determined the home loan rates as per the BPLR or the Benchmark Prime Lending Rate. Some lenders also allow borrowers to switch from BPLR to MCLR against a fee, which may or may not reduce the rate of interest.
Tenor Of Your Loan
Transferring your home loan when it’s approaching the end of the repayment tenor is not a viable option. Also, do consider the tenor the new lender is offering.
A longer tenor offered may seem beneficial as it lowers your EMIs drastically combined with the cheaper rate of interest. However, the total payable interest will increase with a longer tenor, thereby increasing the cost of the loan.
Comparing the total outgo from each lender is essential in such cases. A home loan transfer calculator can be helpful here. It tells you the amount you save based on your existing home loan balance, the current rate of interest, the new rate of interest, the existing tenor, etc.
Fees And Charges
Your current lender may or may not charge a fee when you opt to avail of the balance transfer facility. Note if charges were part of the terms and conditions of the transfer. However, the new lender may necessitate you to pay several charges.
Additionally, you may be required to pay processing fees, mortgage origination fee, secure fees, stamp duty, etc. These fees may lower the amount you save during a housing loan takeover, especially when the tenor is coming to an end. So, consider these fees when you compare and calculate the outgo.
Benefits And Features Offered By The New Lender
Another factor to consider is the benefits and features that the new loan provider offers you. For example, NBFCs such as Bajaj Finserv enable you to avail a Top Up Loan when you opt for their balance transfer facility. The company also does not charge any additional fee when you foreclose or part pre-pay your home loan provided the existing loan is on the floating interest rate.
How To Avail A Balance Transfer Facility?
A no-objection certificate (NOC) from your current lender is mandatory to avail balance transfer facility.
Some NBFCs provide the option to apply for this facility online. You have to provide your personal details, employment details, income, property details, etc. to apply for a home loan transfer.
Do note that the new loan provider will also need you to submit KYC documents, address, proof, income proof, bank account statement, etc. You can use a home loan eligibility calculator and know the amount you are eligible for before applying.