Balance transfer of home loan is the process of transferring the unpaid principal loan amount from one bank to another. There are several reasons why availing this facility is beneficial to the borrower.
Falling interest rates- A home loan involves a substantial amount of money that is repaid over a long tenure. Even a slight reduction in the interest rate translates into significant savings in the long term. That is why an RBI rate cut always brings cheers to the borrowers. If the bank passes on the advantage of decline in interest rates to existing borrowers then they stand to gain a lot as there is a direct impact on their EMIs. But in case your bank is not too eager to reduce the lending rate you can explore different options and switch your borrowings to a different lender. Home Loan balance transfer will help you take advantage of the falling interest rate regime in the market.
Improved credit score—If you are stuck with a high home loan interest rate (because you had an average credit score at the time of taking the loan) your EMI burden maybe huge. But after regular on-time payments over a period of 2-3 years you can renegotiate the interest rate charges with the lender. In case they turn down the request you may consider the option of transferring the home loan. Sometimes your existing lender may lower the interest rate but may charge a high conversion rate for the same. You need to calculate the savings on the total interest liability in order to decide whether to continue with the existing lender or switch to a different one.
Switching from fixed to floating- Since a sizeable amount of income goes into servicing the loan the rate of interest is a matter of great concern for the borrowers. If you had taken a home loan at a very high fixed interest rate and subsequently the market improved and interest rates dropped it makes sense to close the old loan and shift to another bank that offers a lesser rate.
Renegotiation of terms and conditions-
If the EMI burden is becoming difficult to handle you may transfer your home loan and negotiate for a longer tenure with the new lender. Though a longer tenure will increase your interest payout, the EMI will be less taxing on your monthly income. You can also ask the new bank to change some other terms and conditions which your existing bank refused to entertain.
Top-up- Many banks provide you a top up loan that is over and above the existing home loan. Like personal loans the top up loan amount can be used for any purpose like home renovation, paying off an auto loan, debt consolidation etc. The rate of interest charged on this loan is usually lesser than the home loan interest rate. So if you need funds and your current lender is not agreeing on giving a top up, you can benefit from a balance transfer by shifting to a new lender who offers you this facility.
Quality of service- Another reason why you may want to switch your home loan to a different lender is the poor quality of services offered by the existing one. If you are unhappy with the substandard services and lethargic approach of your bank you can look for other better options. For example if the bank does not offer you special offers or privileges even though you’ve been consistent with the EMI payments you can think of a change.
Balance transfer usually makes sense in the early stages of the home loan tenure. If the outstanding loan amount is low and the tenure is expected to end in a few years then it may not be ideal to go for a transfer. A balance transfer involves a lot of time, paperwork and expenses. The reduction in the interest payout should be significant enough to justify the efforts and the costs involved in transferring the loan. Inform your lender about your intentions before taking the final plunge. Since banks do not want to lose their customer, sometimes they may give into your request and agree for a renegotiation. You may want to stick to the current lender if his offers are as appealing as the other competitors.