How is Home Loan and Home Loan Balance Transfer connected?
No matter how much you research your home loan decision, the long tenure will see fluctuations in the interest rate. Do you have an existing home loan but the home loan interest rate scenario has recently changed? You may now wish to benefit from the lower interest rate instead of continuing to pay more interest. How can you do this? You can go for the balance transfer option and benefit from a lower interest rate.
Understanding home loan balance transfer
A home loan balance transfer allows you to shift your home loan from your current lender to one that is offering you a lower interest rate. The new lender will give you the loan as a new one and will pay the outstanding loan amount to your existing lender. You will then pay all future EMIs to the new lender in accordance with the prevailing home loan interest rates. Effectively, you close your older home loanwith a home loan balance transfer and get a new one with a different lender at a lower home loan interest rate i.e., you refinance your home loan.
To do this, you have to talk to your existing lender and complete some formalities as below –
- You will have to submit a letter to the existing lender, requesting a home loan balance transfer
- The lender will issue a no objection certificate (NOC), a foreclosure letter, list of property documents (LOD), and a loan statement displaying your EMI payment history
- Now you have to approach a new lender and submit all these documents. You will be making a fresh loan application
- Submit the application form, along with your identity proof, date of birth proof, address proof, etc. You also have to submit documents that prove your ownership of the property. You have to submit an NOC from your builder/society
- The new lender will ask for your proof of incomei.e, salary slips and IT returns
- The new lender will verify these documents and evaluate your home loan eligibility for the balance transfer
- Once your application is approved, the lender will give you a cheque of the balance principal amount to the old lender
- The old lender will then destroy all your post-dated cheques, and you will pay all new EMIs to the new lender
If there is a vast difference in the old and prevailing interest rates, it makes sense to go for a balance transfer. Sometimes, it may not be beneficial. The new lender considers your loan request as a new loan and thus charges loan processing fee, legal fee, valuation fee, and other charges that will increase the cost of the loan.Ideally, you should take a balance transfer when the home loan is in its initial period of 4-5years since you pay higher interest in the initial years. For loans nearing their end, a balance transfer option could actually work against you since you would have already made the higher interest repayments.
Do check your new EMI payments with an online home loan EMI calculator before you apply for balance transfer.