Starting from December 2018, the RBI reduced the repo rate by 75 basis points. As of June 2019, the repo rate is 5.75%, down from 6.50%.
Reduction in the repo rate means that MCLR-linked home loan borrowers will enjoy a lower floating rate of interest and EMIs. However, financial institutions have decreased the MCLR by a mere 5 to 15 basis points. Hence, borrowers may not be able to enjoy the full benefits of the repo rate cut.
Key stats at a glance –
- 1 trillion – Estimated market size of the Indian economy by 2030 in USD.
- 13% s – Contribution to the nation’s GDP.
- 200 million – Quantity of real estate to be added over 2019 in sq. ft.
In such cases, customers can refinance their loan by transferring the balance to another lender.
Balance Transfer Facility
Existing borrowers can switch to another lender, offering a lower rate of interest, by transferring their outstanding loan balance. Make sure you know the current MCLR when planning for a home balance transfer.
Availing this facility can also be beneficial if your current lender is not offering features like a top-up loan, a tenor extension for lower EMIs, etc.
Follow these steps to refinance your loan
Consider the tenor
The EMIs of your housing loan remains the same throughout the tenor. However, the interest and principal parts change with each EMI. During the early months, a majority portion of your EMIs is the interest. As you repay, the interest decreases and principal increases.
Refinancing your home loan during the initial years of repayment is more beneficial as the principal is low. Hence, the new rate of interest will be applicable to the outstanding principal. You will not only get to enjoy cheaper EMIs, but your cost of the loan (principal + interest) also reduces.
Hence, you must consider the tenor before opting to refinance through a balance transfer facility.
Check the charges
You will have to pay additional charges when transferring your housing loan balance. For example, the new lender may charge you processing fees up to 1% on the outstanding principal.
Mistakes to avoid while applying for home loans: https://www.businessmodulehub.com/blog/to-apply-for-a-home-loan-be-careful-and-avoid-these-missteps/
Arrange the documents
The new financial institution will also need you to provide a few documents required for a home loan.
These include –
- Identity proof – Employee ID card, Voter ID card, Driving Licence, PAN, Aadhaar, etc.
- Address proof – Any KYC document with your permanent address, latest utility bill, life insurance policy, etc.
- Latest salary slips or Form 16.
- Bank account statements for the last 6 months.
You can transfer your loan balance to NBFCs like Bajaj Finserv by submitting only the documents mentioned above. The company provides up to Rs. 3.5 Crore with tenors stretching up to 20 years.
How to calculate savings after refinancing?
You can calculate the amount you save with refinancing by using a balance transfer calculator. This online tool can help you calculate the amount saved after you enter the following information –
- Existing lender.
- Location of your property.
- Loan starting month and year.
- Total sanctioned amount.
- Existing loan tenor.
- Existing rate of interest.
- New interest rate.
The calculator will also show the top-up loan you are eligible to receive upon transferring your balance.
There are several benefits of home loan balance transfer, a top-up loan being one of them. A top-up loan is an unsecured loan which can be availed over and above the existing loan and comes with no end-use restriction. Opt for such credit if you require additional funding to renovate your house in case you have purchased a property second-hand via a housing loan.
Top-up loans can also be used for other purposes like –
- Higher education.
- Medical emergencies.
- Debt consolidation.
- Business-related expenses.
- Overseas vacation, etc.
The amount you avail with a top-up loan – Rs. 50 Lakh - is also higher compared to a traditional personal loan, which offers up to Rs. 25 Lakh.
Do make sure that you know everything about home loan balance transfer before availing its benefits. Also, check the home loan eligibility criteria of the new lender when you are planning to refinance.