The present economic slowdown has adversely influenced the finances of borrowers, and has brought forth the need to save on their repayment more than ever. Refinancing of home loans is thus among the various effective means to do so. A home loan balance transfer with its typically reduced rate of interest may thus be able to ease the EMI burden of an ongoing loan.
However, along with a lower rate of interest and better terms and conditions, borrowers must also take care of other essential factors when planning a transfer to maximise the benefits. Thus, a few specific considerations need to be kept in mind before opting for a home loan balance transfer.
Points to consider before selecting a home loan balance transfer
1. Negotiation for the rate of interest
Before opting for a home loan transfer, it may be prudent to engage in negotiation with the present lender to reduce the existing rate of interest. If instalments have been paid in time and the borrower has a reliable credit history, the lender may be open to considering such a request.
In such an instance, the borrower may end up availing the benefits without having to pay the foreclosure and prepayment charges, application fees, processing fees etc.
2. Charges on balance transfer
Even with a lower interest rate, transferring the home loan amount may not be feasible if the charges involved are high. There are various administration charges, application fees, processing fees, etc. which add up to a considerable amount.
Also, the charges are often levied both by the new as well as the existing lender. A borrower should know this about home loan balance transfer along with other critical details. It is advisable to go for a calculation of the cost involved in such transfer and consider whether it significantly differs from the amount of interest saved via such transfer. It is only in the latter case that a home loan balance transfer will be beneficial for the borrower.
3. Assessment of credit rating
A borrower's credit score is a clear indicator of his/her eligibility for a balance transfer. If repayments have been inconsistent or EMIs not paid within due time, the credit rating will be negatively affected.
Poor credit score thus often makes a borrower ineligible to avail the home loan balance transfer facility. The new lender will be assessing the credit score along with a host of other eligibility criteria. Thus, along with understanding how home loan balance transfer works, it is also essential to consider the eligibility parameters that come along. It will be helpful if borrowers ensure that the EMIs and credit card bills are paid in time so that credit score remains high to ensure a hassle-free transfer of the home loan balance to another lender.
4. Top-up amount available
The top-up amount is another typical benefit that borrowers can avail when opting for a home loan refinancing. It is a loan amount offered over and above the outstanding home loan amount when you opt for a balance transfer facility with a new lender.
Such top-up loan often come with unrestricted end-use, helping borrowers finance other monetary needs with ease. Nevertheless, the amount can vary from one lender to another. Some reputed financing institutions provide the advance ranging up to 50% of the transferred value, which can extend up to Rs.50 lakh.
Such financial institutions also extend pre-approved offers to make financing quick and simple for borrowers. Such offers extend to several credit options, including home loans and loans against property. Borrowers can check their pre-approved offer online only with some basic details like their name and phone number.
Once you have made all such considerations, it should be easier to opt for a balance transfer facility on your home loan that maximises the benefits available. Such prudence would not only help save sizeable but also allow the borrower to fulfil other funding needs with ease while facilitating easy repayment.