Home loan refinancing, also known as a home loan balance transfer, is a facility offered by most lenders these days. Borrowers may opt for this facility when they are offered better terms and conditions, such as a lower interest rate or a longer repayment tenor to ease the burden of repayment, on a home loan. In this article, we will discuss the home loan balance transfer process in detail. However, before we do that, let us look at how and when to transfer a home loan.
When Does Opting for a Home Loan Balance Transfer Make Financial Sense?
1) During the Early Years of Home Loan Tenor
Home loan borrowers repay home loans in the form of EMIs. Each EMI covers a part of the interest component of the home loan and a part of the principal component. During the early years of one’s home loan tenor, the interest component of the home loan EMIs is much higher than the principal component. Thus, it makes a lot more sense to transfer the remaining home loan amount from the current lender to another during the early years of loan tenor when the interest component of the home loan is much higher than the principal component. If you have already repaid a considerable portion of the total interest, transferring your home loan to another lender won’t make much of a difference.
2) When There is a Considerable Difference in Current and New Home Loan Interest Rates
Most home loan borrowers avail of the home loan balance transfer option when there is a considerable difference in one’s current and new interest rates. Home loans are long-tenor loans and therefore, the difference in the interest rates or a lower interest rate can help borrowers reduce the total interest outgo. The difference can be easily calculated by balance transfer calculators available online for various lenders’ websites. One such calculator is the Bajaj Housing Finance Home Loan Balance Transfer Calculator which helps you calculate your potential savings on transferring your home loan balance.
3) If Your Credit Score Has Improved
The credit score is important in the home loan balance transfer process as it enhances home loan eligibility and chances of being able to avail of a loan on beneficial loan terms and conditions. If you have successfully managed to improve your credit score over the last few months or years, you can talk to a few lenders and see if they are willing to offer you better terms and conditions on your home loan. If you find a lender willing to refinance your home loan on better loan terms and conditions, you can consider getting your loan refinanced.
Now that we know when to transfer one’s home loan, let us look at the home loan balance transfer procedure.
Step-by-Step Guide to the Home Loan Balance Transfer Process
- Before you can make an application to another lender for a home loan balance transfer, you must first inform your current lender of your intention to do so. You can inform your current lender either by writing them an email or a letter. If your current lender agrees to your request, they will release a ‘No Objection Certificate’.
- With the No Objection Certificate with you, you can now apply for loan transfer to your new lender. Please make sure you meet your lender’s home loan eligibility requirements before applying for a home loan balance transfer. Not meeting the qualifying criteria may lead to home loan application rejection.
- Once your new lender receives your home loan balance transfer application, they will verify all the documents and the information provided by you in your application. If you meet the qualifying criteria, they will approve your loan application.
- You will then be required to submit all the original property documents as well as mandatory documents, KYC, and income proof documents that you had submitted to your old lender.
- After this, your lender will verify all the documents provided by you. If you pass the verification stage, your home loan balance transfer request will be considered complete.
- Your new lender will now pay off your old lender and post this, you will start paying your home loan EMIs to the new lender.
To conclude, home loan balance transfer is a great option for home loan borrowers who are paying home loans at higher interest rates or who wish to avail themselves of a top-up loan. However, a home loan balance transfer must be performed after a thorough cost-benefit analysis and preferably during the early years of loan tenor. If you have already repaid a considerable portion of your home loan interest, it is very unlikely that you will benefit from a home loan balance transfer from a financial perspective. Remember, timing is the key here.
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