The Reserve Bank of India cut repo rates by 35 basis points in August 2019, thereby causing a reduction in lending rates for all financial institutions in the country. This reduction in rates caused several individual borrowers to opt for home loan transfers.
If you are currently repaying a housing loan, a balance transfer is something that you should consider to avail more affordable interest rates. Smart transfers can reduce home loan repayment hassles drastically.
What is a home loan balance transfer?
Home loans are long-term credits, with tenors ranging up to 20 years in some cases. When repaying such high-valued loans, you need to be comfortable with the interest charged on credit by your lender to meet the EMIs without hassle.
If more attractive rates are available in the future, your current lender allows you to transfer the outstanding loan amount to the other financial institution. This process is known as a home loan balance transfer.
Keep in mind that initiating such a transfer will account for additional charges and penalties. Thus, you must consider whether a housing loan refinance facility is beneficial for you, based on certain factors.
When should you consider home loan balance transfer?
- Substantial reduction in benchmark rates
MCLR stands for the marginal cost of funds-based lending rate and refers to the most affordable rate of interest at which an HFC charges for a home loan. The MCLR changes based on any alteration in the RBI repo rates. Lower repo rates lead to more affordable interest on such loans and vice versa.
Repo rate cuts or increase is measured in base points or BPS. 100 BPS represents a reduction of 1% repo rate. Thus, it is not advisable to initiate home loan transfer whenever you notice a minor MCLR decrease.
Instead, ensure you reserve balance transfers when MCLR reduces by at least 25 basis points. Otherwise, any gain will be nullified by the additional charges or fees applicable for the home loan transfer. When used smartly, such transfers can be the secret to availing a better home loan interest rate.
- You require additional funding
To avail additional funding over and above the home loan, you can opt for a home loan transfer and avail a top-up loan offered by select lenders. These loans are unsecured, provided to borrowers at more attractive interest rates than other similar advances such as personal loans. Also, these loans do not come with any end-use restriction and can be used by a borrower for any usage.
Ensure you know all about such credit before fulfilling your financial needs with a top-up loan.
- When you are unhappy with the current lender
Borrowers may have unfavorable experiences with their lenders. For instance, the financing company may possess below-average customer care services. This can be problematic, especially if you have queries and want to reach out to the lender to arrive at a solution. In such a case, borrowers should transfer their home loan to a reputed housing finance company.
How much can you save through home loan transfer?
The funds you save after the loan transfer depends on the following factors –
- Your monthly EMIs.
- Outstanding principal amount for the loan.
- The tenor of the existing loan.
- Interest offered by the HFC where you are transferring the credit.
- The necessary tenor for repayment of the transferred balance.
With technology, home loan balance transfer calculation has become much simpler today. You can use online calculators to derive whether a transfer to another lender is beneficial to your overall finance. Utilizing such a transfer, you can either reduce the tenor for your home loan or the EMIs. In both of these cases, the total cost of the loan decreases.
With a smart balance transfer, you can initiate a beneficial change to your home loan repayment. Still, consider all aspects before such a transfer to avoid increasing your overall home loan burden.