Home Loan Balance Transfer - Why You Need It

Home loan balance transfer is like a Godsent help  for people who have  taken a home loan. There are significant benefits.

When people get a home loan and buy a house, the joy of becoming a proud homeowner of that dream home is accompanied by the burden of the loan repayment.  Granted that there are substantial income tax benefits on home loans. Yet, the monthly EMIs, the weight of the interest component, the long repayment tenure —  unpleasant thoughts about these keep playing at the back of the mind, and keep nagging the borrower. Naturally, one would be inclined to look for ways to reduce the monthly burden, or cut down the repayment tenure. 

This is where home loan balance transfer comes in. Read on to understand what is home loan balance transfer, how home loan balance transfer works, how to do home loan balance transfer, home loan balance transfer charges and RBI guidelines, and what are the documents needed for balance transfer. 

What is Home Loan Balance Transfer?

Also called ‘refinancing’, home loan balance transfer is a process that lets you transfer your outstanding home loan balance to another lender. But then why would someone do that?  The benefit of balance transfer lies in the lower interest rate offered by another lender. That is to say, even as you are repaying your home loan, and another lender comes along and tells you that you can transfer the home loan balance to him and he will charge you a lower interest rate than what you are currently paying, then you can actually go for it! You can transfer the outstanding balance to this new lender and enjoy significant savings resulting from the lower interest rate.

How Does Home Loan Balance Transfer Work?

The next question on your mind, naturally would be, how to do home loan balance transfer. Here is an outline of the steps involved in the process.

  1. Even before you start looking out for balance transfer options in the market, you would need to wait to fulfill the term specified by your current lender before which you cannot go for balance transfer.  Generally, lenders allow balance transfer only after a certain minimum term. 
  2. Once you have completed the minimum term with the current lender and you are allowed to go for balance transfer, look at the refinance options available.  You can look up websites of various banks to check  if they are offering balance transfer, and read up the eligibility criteria. Telemarketing executives of various banks may reach out to you directly to offer you  home loan balance transfer.
  3. Weigh in the options, and calculate the benefit of going for balance transfer. If you are convinced, you would need to apply for home loan balance transfer, just as you would apply for a home loan, using the application form on the website.
  4. You would need to submit all the documents necessary for approval of  home loan balance transfer.
  • Your passport size photograph.
  • Three or six months salary slips, as the case may be.
  • Bank statements, as applicable.
  • KYC documents like address proof,  age proof.
  • Proof of existence of business and financial statements in case of self-employed people.
  • The loan statement and related documents pertaining to the current lender.
  • Other documents, as required by the new lender.
  1. Your balance transfer application will be processed just as it is done in case of the original home loan. Your employment status, your income, your repayment capacity and other usual criteria would be taken into consideration to appraise your eligibility for the balance transfer. The process may take 10 to 15 days.
  2. If the balance transfer is approved, you will need to pay the fee which is usually  0.5% 1% of the outstanding amount.
  3. Your current lender may take another 10 to 15 days to close the account and handover the property document to the new lender. 

Home Loan Balance Transfer Charges

Now that you know how to do home loan balance transfer, it is pertinent to note that you would need to pay the home loan balance transfer charges to avail balance transfer. As mentioned in the previous section, the charges are usually 0.5% to  1% of the outstanding amount.  Your current bank may also levy a prepayment penalty if applicable. When you are calculating the differential benefit of going for a balance transfer, take care to factor in the home loan balance transfer charges and also the prepayment charges for the current lender.

Home Loan Balance Transfer RBI Guidelines

  • RBI mandates that no prepayment charges should be levied in case of floating interest home loans.
  • Also according to RBI rules, banks are not supposed to charge home loan fees for balance transfer of home loans.

Benefits of Balance Transfer of Home Loans

  • As banks try to woo customers for balance transfer, they would charge you significantly lower interest rates compared to what you are paying on the original home loan.  To put things in perspective, the original interest rate would be 9% to 12%, whereas the interest rate paid on balance transfer of home loan might be as low as  6.7%. You can thus reduce your monthly installment amount.
  • There is no minimum or maximum amount, you can transfer the entire outstanding loan balance.
  • The new lender may offer you attractive benefits and discounts.
  • You can extend the repayment tenure at the time of balance transfer within the rules specified by the new lender.
  • You can also transfer the loan to another person if you are selling the property to that person.
  • Sometimes, banks may also offer you  a top up loan when you transfer home loan balance to them. 

Does Balance Transfer Affect Your Credit Score?

After understanding how balance transfer works, the final question on your mind could be, “WIll it affect my credit score?”

The good news is that it doesn’t!  Go ahead and avail the benefits without worrying about whether it will impact your credit score and hurt your creditworthiness.