The Home Loan sector is largely dependent on external benchmarks such as repo rates which are set by the Reserve Bank of India. Due to market fluctuations, interest rates vary periodically. Hence, Home Loan borrowers are always on the lookout for loan schemes at lower interest rates.
Even those servicing a housing loan try to avail of competitive deals by negotiating favourable terms with their current lender or opting for a Home Loan Balance Transfer with another lender who offers them better interest rates. However, like every other loan, there are several pros and cons of Home Loan Balance Transfer that necessitate a wider understanding of some of its key elements.
Home Loan Balance Transfer – Pros
Detailed below are some of the advantages of a balance transfer:
Reduced Interest Rates
One of the chief reasons for switching lenders is to avail the benefits of a lower home loan interest rate. Loan rates single-handedly influence the cost of your Home Loan. Therefore, securing a modest interest can considerably cut down your debt, in addition to fetching you suitable terms and services.
Also Read: Five Ways to Reduce Your Home Loan Burden
Enhanced Credit Score
A balance transfer can aid in improving your credit score. Maintaining a high credit score is vital to receiving attractive interest rates and credit deals.
Cost-Effective Loans
The primary objective of a loan shift is to save money. Reduced interest rates make it easier to repay the loan. It enables you to budget proactively as well as plan for pre-payments to decrease the interest outgo and close the loan sooner.
Home Loan Balance Transfer – Cons
Now let us consider the various downsides of a balance transfer:
Tricky Terms and Conditions
Even if you snap up the best transfer deal in the market, go through the terms and conditions carefully to avoid any unforeseen financial quandary in the future.
Loan Approval Process
When you apply for a balance transfer, it is very similar to undergoing the Home Loan approval process once again as it involves legal verification of the documents, credit appraisal and so on. A loan switch requires you to fulfil the lender’s eligibility criteria and there are possibilities of rejection if you don’t measure up to these parameters.
Read Also: Loan Disbursem*nt and Sanctioning Process
Additional Fees and Charges
There are several charges and fees associated with a balance transfer. If one isn’t cautious, these costs may add up to make your transfer option an expensive proposition. So, compute these charges while calculating the costs of a loan shift to assess its viability.
What is a Home Loan Transfer to Another Person?
Just as lenders allow borrowers to switch their existing Home Loans to another lender based on specific terms and conditions, they also provide a facility for transferring a loan balance from one individual to another. While servicing an ongoing Home Loan, if you wish to sell off the property against which you have secured the loan, and a buyer seeks to avail of a Home Loan from the same lender, an internal balance transfer takes place from one person to another.
Here, the applicants change while the lender remains the same. The owner sells the property to the buyer with a subsequent transfer of ownership rights; and closes the loan with the money obtained through the sale.
How to Transfer a Home Loan to Another Person?
A Home Loan transfer has certain pre-conditions. Firstly, the existing loan borrower must furnish a letter requesting loan foreclosure against the sale of the property. If another individual wants to purchase it, s/he may apply for a house loan with a duly filled application form and the applicable processing fees.
The buyer has to submit KYC documents and income proof to the lender. The property will undergo a legal and technical evaluation to determine its current value since the process involves ownership transfer. A No Objection Certificate from the developer or authority is also necessary in this case.
The lender issues a cheque to the seller/owner after the ongoing home loan is closed with the proceeds of the newly sanctioned loan. Then, the seller hands over copies of the property-related documents to the buyer, while the original ones remain in the lender’s custody until complete loan repayment.
To Conclude
A balance transfer can reap maximum benefits in the initial years of the loan tenor provided you get the ideal tenor and interest rate. Thus, if you are given a longer tenor with lower EMIs, your interest pay-outs will increase considerably, raising the credit cost. Moreover, if you have already repaid a large chunk of your EMIs, it is best to continue with the current lender, as a loan switch may not fetch you any gains at this stage.
It is always advisable to negotiate the rates with your present lender first and try to avail of a better deal. This will save you ample time and energy. But if you cannot come to an agreement, a loan shift could be the best alternative. Remember, you may have to bear a penalty for seeking a transfer. Some lenders waive off this amount while others might impose a partial waiver. Also, a Home Loan Balance Transfer Calculator enables you to gauge and compare the various loan transfer schemes in the market so that you can select the one per your preference.
