In its recent monetary policy meet, RBI has decided to keep the repo rate unchanged at 4%. This news brought relief to the prospective homebuyers as well as the current borrowers since the interest rate on housing loans is not likely to increase. Resultantly –
- The home loan segment in India is likely to grow at a CAGR of 22% during FY 2021-26.
- RBI is hoping to curb the rising GNPA rates, which is likely to reach 13.5% by September 2021.
With housing loan rates at sub 7%, this is the ideal time for home loan balance transfer and its benefits to ease the repayment burden.
Benefits of home loan balance transfer
The process of balance transfer allows individuals to shift their outstanding principal amount to a new lender to avail better facilities. Following are some notable benefits of this facility –
- Avail lower interest rate
Since interest payment constitutes a significant portion of home loan EMIs, a minor shift in interest rates can make a considerable difference. The primary objective of availing this facility is to opt for a lower home loan interest rate, which in turn reduces the EMI as well.
Here is an example to illustrate this point further –
An individual has availed a home loan of Rs.40 lakh at an 8.5% per annum interest rate for a tenor of 20 years. His/her EMI will be Rs.34,713. After regular repayments, the borrower decides to shift the loan to a new lender.
The remaining loan amount at that point is Rs.35 lakh with 15 years of repayment tenor. Moreover, this new lender charges a 7% per annum interest rate, and the resulting EMIs is now Rs.31,459.
Alternatively, borrowers can use a home loan balance transfer calculator to find the necessary details related to this process within a few seconds.
- Better loan repayment terms
Another important benefit of a loan balance transfer is to avail better repayment terms than before. Since every lender has its own set of regulations related to a credit payment, with this facility, one can opt for more flexibility in loan repayment.
For instance, you are planning to make part prepayments and your current lender asks for additional charges. It is one of the reasons to refinance a home loan to resolve this issue. Since part prepayments reduce the loan principal, it lowers the loan EMIs and helps you to save on interest costs.
- Top-up loans
Another notable feature of home loan balance transfer facility is the availability of top up loan. Availed against the current credit, this additional amount comes with no end-use restrictions. Therefore, borrowers have the leeway to exercise these funds to fulfil their urgent financial needs.
- The loan quantum of a top-up facility depends on the principal amount repaid till that point.
Moreover, the interest rate and loan tenor stays in tandem with the remaining home loan. Thus, borrowers can easily repay this additional credit without straining their finances.
- Additional offers
Apart from these, lenders may come up with additional facilities to enhance the customer experience further. For instance, pre-approved offers extended by reputed financial institutions streamline the application process and save time. It is applicable to financial products like home loan, loan against property, etc. Borrowers can check their pre-approved offers by providing their essential contact details.
To avail of the benefits of a home loan balance transfer, one must be aware of the associated process.
Read Also: 5 Things To Consider Before Switching Home Loan
Process of housing loan balance transfer
- To initiate this process, borrowers need to file an application with their current lender regarding this balance transfer.
- Once the lender approves the request, individuals need to gather NOC, consent letter, loan repayment statement, and property documents from the existing lender.
- Following this, borrowers can now apply for a balance transfer with the new lender and complete the initial formalities.
- After the approval, they need to submit the required documents.
- The current financial institution will then complete the verification, and if approved, they will foreclose the current loan, and debtors will start repaying their new lender.
Keeping the necessary documents in line is important to streamline this process and save time.
A home loan balance transfer is a facility that aims to increase the convenience of a borrower with better loan repayment terms. However, one should keep a track of some essential pointers when they do a home loan balance transfer to make an informed decision.
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