North India Statesman
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Home Loan Transfer: When you have taken a loan to buy a house and later you come to know that some other bank is offering loan at a lower interest rate than yours, what to do? In such times, the option of home loan balance transfer can prove to be very beneficial for you. Through this process you can transfer your existing loan from one bank to another and save thousands of rupees every month.
What is home loan balance transfer?
In simple words, when you transfer your existing home loan from one bank or financial institution to another bank or financial institution, it is called home loan balance transfer. Its main objective is to get loan at lower interest rate or better terms. This process can reduce your monthly EMI and save you lakhs of rupees in the long run. For example, if you are repaying a loan of Rs 30 lakh at an interest rate of 9% and a new bank gives you a loan at an interest rate of 8%, then your monthly EMI reduces significantly. If this difference persists over the years, a huge amount can be saved.
When is transfer of loan appropriate?
It is important to keep some things in mind before deciding to transfer the loan. If the interest rate on your existing loan is higher than the interest rate of the new bank, it may be beneficial to transfer. But one important thing is that you also have to account for the expenses incurred in the transfer process, like processing fees, legal fees etc. If your loan tenure is almost over or the outstanding amount is very small, transfer may not make much sense. This is because more interest has to be paid in the initial years, while more principal has to be paid in the later years. Another advantage is that if you repay EMIs regularly, loan transfer can improve your credit score. This helps in getting other financial facilities later.
How to transfer loan? step by step process
Step 1: Research and compare. First compare the interest rates, charges and terms of different banks and financial institutions. Many banks in the market offer loans at competitive rates. Find the best option with the help of online media or financial advisors.
second step: Talk to your existing bank. Sometimes your existing bank is even willing to reduce the interest rate to retain you. Therefore, it would be better if you contact your own bank first. This will help you avoid the cost and hassle of transfer.
step 3: If you decide to transfer, to get the necessary documents, you will need to obtain No Objection Certificate (NOC), foreclosure letter and loan details from your current bank. These documents show that you are paying EMIs regularly and there are no objections to your loan transfer.
Fourth step: Apply to new bank, apply for home loan transfer to new bank. You have to submit documents like PAN Card, Aadhar Card, Income Certificate, Bank Statement, Property Documents etc. The new bank will evaluate your income, credit history and property value.
Fifth Step: During the approval process, the bank examines your application and approves it. They then repay your old bank balance and the loan is transferred to their name. This entire process usually takes 15 to 20 days.
List of required documents
Keep the following documents ready for the loan transfer process ,
Identity Proof: PAN Card, Aadhar Card, Passport
Proof of address: Electricity bill, rental agreement
Income Proof: Payslip, Form 16, ITR, Bank Statement
Existing Loan Documents: Loan Details, NOC
Property Documents: Property Papers, Valuation Report
Top-up loan option
An additional benefit of transferring a home loan is that you can also avail a top-up loan. You can use this extra amount for home repair, renovation, wedding or children’s education expenses. The new bank approves this additional amount considering your income and repayment capacity. However, different processing fees and interest rates may apply for top-up loans.
Cost and Fee Assessment
Processing fee: Usually 0.5% to 1% of the loan amount
Legal and Technical Fees: For property verification and document verification
Valuation Fee: For revaluation of property
Prepayment charges: For closing the loan from an old bank (free for personal loans, but may apply for fixed rate loans)
Stamp duty: Varies by state
Only after calculating all these costs can it be decided whether the transfer will actually save money or not. Sometimes these costs are so high that the savings in interest rates are even less.
Important things to keep in mind
Loan Tenure: Transfer is beneficial only when you have several years left on your loan. It is worth considering if you only have 3-4 years left on your loan.
Credit Score: Your credit score should be good. Typically, a score of 750 or higher will get you better terms from a new bank.
Hidden costs: Understand all the terms and charges clearly. Sometimes costs may be higher than expected.
Floating vs Fixed Rate: Check whether the interest rate on the new loan is floating or fixed. Interest rates are fluctuating in the market, so it is important to take decisions wisely.
Home loan balance transfer is a good option if you plan it right and take the decision only after understanding all the nuances. Even small savings every month can turn into a huge amount in the long run. But do not take any decision in haste. Compare the terms and conditions across banks, estimate costs accurately and seek help from a financial advisor if needed.
