Kolkata, October 22: If you have a home loan running with a certain bank or housing finance company, you have the option of transferring the loan to another financial institution. This process is known as home loan balance transfer.
Balance transfer makes sense when some other bank or housing finance company offers you a lower rate of interest than what your current loan. A lower interest rate results in lower EMIs and you also save on interest. Lower interest rates are one of the primary reasons why people opt for balance transfer.
Here, we look at six things you need to consider before you go for a balance transfer:
Check interest rate track record of the new lender
If the new lender is advertising a lower interest rate, it is essential to get more information on their interest track record. “Check if the interest rate offered by the bank is real and not a short term gimmick,” says Manoj Jain, Director (Finance), Saya Homes.
Find out about the service quality of the new lender
Verify that service quality offered by the new bank you are choosing lives up to your expectations. Lower rate should not come at the cost of inferior service.
Get an idea of the transaction cost
Some banks may have foreclosure charges. Check with your existing lender if there is any such fee. Also, check the processing fees of the new loan. It is normally one per cent of the loan amount outstanding.
Check if the spread is fixed or variable
“Interest rate on floating rate loans consists of two parts- benchmark rate and spread above it,” says Jain.
While the benchmark rate is expected to change over time, the spread is supposed to remain constant except in case of default. However, some banks after floating-rate loan with both the benchmark and the spread being variable. In case of many such loans, borrowers see their loan interest rates rise sharply after a few months.
“So avoid loans with variable spreads and instead opt for floating rate loans that vary interest rate only with change in benchmark price,” he adds.
Check loan eligibility of your new lender
Cost of property consists of multiple heads such as basic price, preferred location charge, external development charges, security deposit, electrification charges, power back-up charge, service tax and so on. Norms for inclusion of each cost head differ across lenders.
“In case your chosen new bank does not include heads in the cost of property which were included by the old bank, the loan eligibility may come down and you may need to increase your contribution,” says Jain.
Select the right time to transfer
The process of loan transfer may take 10-15 days from the date of application and your existing bank may typically take another 10-20 days to handover property documents to the new bank.
“You will not be able to avail further loan disbursements during this period. Hence, it is important you time he transfer of your loan at a time when you don’t expect any fresh demand for the builder for the next month or so,” Jain sums up.
Keeping the above in mind will ensure that the home loan balance transfer is a smooth process and you actually benefit from it.