Is your Home Loan Balance Transfer Decision Right in COVID Times? Check this out!

According to a report, the repo rate in 2020 was cut down by 115 basis points, bringing down the home loan interest rate as well. Due to the present financial conditions, the RBI may be forced to adjust this repo rate further. 

In this situation, a borrower paying a high-interest rate to lenders can opt for a home loan balance transfer to reduce their liability.  

Just as a coin has two faces, refinancing brings certain variables which must be checked before initiation.

What is a home loan transfer?

A home loan balance transfer involves transferring the unpaid principal to a preferred lending institution levying a low-interest rate. An existing lender receives an outstanding balance, while a borrower now has to pay a suitable EMI rate to the new lender. 

Individuals can also fulfil their urgent financial needs with a top up loan, extended as a perk with refinancing. One can receive a viable top up loan interest rate when they opt for refinancing. Ideally, the top up loan depends upon the property value and income of the borrower.

To better plan the finances, borrowers can also use the top up loan calculator that estimates the EMI payable. 

When should one home loan balance transfer?

While lower interest rates can influence the decision to refinance, a borrower must check when they should do a home loan balance transfer to optimise benefits. Some of the factors are discussed below.

• Lower interest rate

The Reserve Bank of India ideally regulates the interest rate, and CRR levied by a financial institution. A reduction in any of this factor can instantly reduce the interest rate. Hence, before proceeding with the home loan balance transfer, one should be clear that the home loan interest rate is not constant. 

In this regard choosing a lender offering suitable financial services and interest rates can be lucrative. Some HFCs also provide pre-approved offers on selective products like loan against property, home loans and more. This makes the loan application process swift and convenient. Check your pre-approved offer by entering your name and contact number.

• Processing cost

When deciding to proceed with refinancing, researching about the processing charges can be helpful. For instance, a borrower availing a home loan of Rs.2 Lakh has to pay around Rs.2000 as a loan transfer charge which is expensive. 

Moreover, an existing lender can levy additional transfer fees and foreclosure charges that make the process troublesome. Hence, a borrower must analyse the linked expenses and switch lenders only when shifting lenders is profitable after considering such costs.

• Longer tenor

Another crucial factor that can affect a housing loan balance transfer is credit tenor. A borrower who has several years left to repay an existing loan can opt for this facility. If only 1-2 years are left for principal loan repayment, refinancing can be a wrong decision. Ideally, the processing and transferring charges can be expensive, exceeding the amount saved from loan transfer.

• Higher outstanding balance

Borrowers must opt for home loan transfer when the outstanding principal amount is high. The EMI amount includes both the principal amount and interest payable. The principal amount gradually reduces as the loan matures, further decreasing the outstanding credit amount. Hence, loan transfer seems viable when a large portion of the amount needs to be paid. Selecting a lender offering a low-interest rate and better services will help in making efficient savings.

• Moratorium

Even though most borrowers were able to take advantage of the home loan EMI moratorium in 2020, the interest accrual did not cease during this time. Thus, before transferring an existing balance, one would have to take such interest into account as well and decide accordingly.

Considering the discussed factors can help a borrower save more while paying EMI. A home loan balance transfer is a vital decision that must be taken only when the interest rate or lender seems problematic.