With the recent drop in interest rates, some of you may be considering doing a home loan balance transfer to another bank or lender. Before you start the process of switching your home finance provider it is important that you understand the costs, benefits, and process involved so you can make the right decision.
To help you we have put together this guide to home loan balance transfer.
What is Home loan balance Transfer?
A Home Loan balance transfer is the process by which the outstanding balance of your Home Loan is transferred from your existing lender or bank to a new lender or bank. A home loan balance transfer is also known as home loan takeover.
You should ideally consider the option of a balance transfer to avail lower interest rates, get superior customer service or avail a specialised home loan product.
What are the benefits of transferring a home loan?
The benefits of opting for a home loan balance transfer are largely dependent on the current home loan you are running. However, the top benefits for which you may want to switch your home loan provider include:
- Saving due to reduction in Interest rates – You can potentially save lakhs if are switching to a bank which offers a lower interest rate than your existing loan. However, we suggest the interest rate difference be at least 0.50%
- Continued benefits from rate reduction – You can benefit from potential interest rate reductions in the future by switching to a benchmark rate linked home loan from a bank if you are currently running a home loan with an HFC/NBFC
- Better customer service – If your current bank or lender is providing bad customer service and you are finding it difficult to service your loan due to the same you can consider switching
- Top up the loan amount – If your current lender is unable or unwilling to provide a top-up on your home loan you can consider doing a home loan balance transfer to another home loan provider if they are willing to provide the top-up loan
- Avail specialised home loan products – If you are looking for special home loan products such as home equity or home loan with overdraft facility you can available the same by doing a balance transfer to a bank that provides the same
What are the costs involved in a home loan balance transfer?
The costs involved in a balance transfer depend on multiple factors including the current home loan and lender, type and location of the property, and new lender and home loan product. However, the top cost you are likely to incur are:
- Processing Fee, Legal and Valuation charges from the new lender – The new lender you are applying to will treat your application as a new home loan application and will likely charge you processing fees, legal and valuation charges to process your application. Some lenders offer a waiver of processing fee on balance transfers so it is helpful to check the same.
- Account statement of the current loan, Document list retrieval, document retrieval charges from the existing lender – There are some lenders that will charge you a fixed fee for providing the account statement or list of documents currently held with the lender. This is generally required to be provided to the new lender. They may also charge you a fixed fee to retrieve those documents when you are closing the loan. It is good to discuss your plan to close the loan via balance transfer with your existing lender before you opt for the balance transfer.
- Pre-payment Penalty – Banks are not allowed to charge a pre-payment penalty on balance transfer on floating-rate loans. However, if you are currently running a fixed-rate loan it is likely that the existing lender will charge you a penalty. So, this must be discussed with the existing lender.
- Stamp Duty, MOD charges by the Government – In several states, the government charges Stamp Duty and/or MOD charges on the home loan amount. These generally range from 0.1% to 0.5% of the loan amount depending on the state.
How to do a cost-benefit analysis for a home loan balance transfer?
Having understood the potential benefits and costs involved in a balance transfer you can do a cost-benefit analysis to determine if it is financially beneficial to do a balance transfer. Please note that this is useful when your objective is to save from lowering your interest rate.
If you are looking to move your home loan for better customer service or a differentiated product and not necessarily for interest saving then the cost-benefit analysis may not be required but you should still do the same to understand the financial impact of the balance transfer.
To do the cost-benefit analysis you can use the following formula:
Savings = Cost of Current Home Loan – Cost of Proposed Home Loan + Cost of Balance Transfer
Here, you can calculate the following as:
Cost of Current Home Loan = (No. of EMIs outstanding * EMI) – Principal Outstanding
Cost of Proposed Home Loan = (No. of EMIs planned * EMI) – Home Loan Principal
Cost of Balance Transfer = Sum of all fees and charges from existing and new lender for the loan transfer
What is the process for transferring a home loan?
Once you have performed the cost-benefit analysis and decided to proceed with the home loan balance transfer you will need to do the following steps:
- Shortlist new bank that you wish to transfer your loan to
- Decide if you want a top-up loan or would like to consolidate any other loans along with your balance transfer
- Obtain a list of property documents deposited with your existing bank (in case this is not available with you already) and foreclosure letter from existing bank
- Apply for a loan with the new bank with a photocopy of property documents as per the list of property documents with existing bank
- Obtain sanction letter and execute the new loan agreement
- Take disbursement from the new bank by way of cheque/ demand draft in favour of the existing bank and also deposit the same
- Obtain property documents from the old bank and deposit with the new bank
How can ValuCircles help in your home loan balance transfer?
While moving to a better home loan can save you lakhs, it can seem like a daunting task. We at ValuCircles can help you through this journey to ensure that you don’t pay any more than you have to for your home loan.
As home loan specialists, we use our proprietary algorithm to assess your profile and work with you to find a better home loan. We also guide you through the entire balance transfer process.
And we always have your interest at heart. That is why:
- We will advise you to move your home loan only if it is beneficial to you
- We will negotiate on your behalf to ensure you get the best deal
- We will suggest specialized home loan products as applicable to you
- We will NOT charge you for our advice or services
So, if you are looking to save on your home loan and want our experts to help you with the same sign-up and start your assessment today.
We are also running a limited time offer on home loan balance transfers where you can get an Amazon Voucher worth INR 2500 if you transfer your home loan using our services. Use promo code VCBT0919 at sign-up to avail this offer.
Offer valid till 30th September 2019.