Home Loan Balance Transfer

Home Loan Balance Transfer helps you reduce your EMIs by moving your outstanding loan from other financial institutes to the one which offers lower interest rate.

Home Loan Balance Transfer or Refinancing or simply Balance Transfer is the process that allows you to benefit from the lower interest rate offered by the other lender. If you have an existing outstanding home loan with one borrower, you can make a home loan transfer, that is, shift the remainder amount to a different borrower who charges a lower rate of interest, the process is termed as a home loan balance transfer or refinancing. This unique home loan transfer service helps a customer avoid high applicable interest rates as listed by one home loan lender and migrate to a lower interest rate structure with another lender.

So why one would need a balance transfer? A home loan involves a significantly large amount of money and therefore, the interest rate on the loan is a matter of concern for everyone who decides to take a home loan. Home loan interest rates may be high so one of the most common ways to reduce interest rates is to either talk to the bank that has provided you with the loan to reduce it or go for a transfer of the balance on an existing home loan or in layman terms, shift your home loan to a bank offering lesser rate.

Key Features of Home Loan Balance Transfer

• Transfer the outstanding balance of you existing home loan to another bank or from one lender to another.
• There is a fee usually equal to 1% of the loan transferred that is payable to the new lender for home loan by the borrower.
• In most cases, the home loan balance transfer application is treated similar to a new home loan application.
• The balance transfer on an existing home loan can only be availed after a pre-determined time period as mentioned on the original loan agreement.
• When the transfer is completed, the borrower owes the transferred principal loan amount plus applicable charges to the new lender instead of the original one.

The most important benefit of availing a home loan balance transfer is saving money. The difference in interest rates between the two lenders, the tenure of the loan and the amount outstanding are the three primary contributing factors. If you see a significant benefit in the home loan interest rate, it may well be worth considering a switch to the new home loan lender. You must first and foremost identify the objective for availing of a balance transfer of your loan. Then you must just ensure that your new home loan helps you bring down your overall cost of acquisition. The reason of switching the lender could include:

• Reducing the EMI burden every month
• Reducing the amount of money to be paid as the interest on the loan
• A person could also consider applying for a balance transfer simply to avail attractive discounts and benefits being offered by the other lender.

Any salaried, self-employed professional or self-employed businessperson with an outstanding home loan that has been regularly serviced can apply for a home loan balance transfer. Though all loan providers have different eligibility criteria, some basic ones are as follows:

• You must be of Indian nationality and of an age 21 to 60 years. Whereas, self-employed individuals are eligible for the transfer up to 65 years.
• Your credit rating should not fall in the run-up to your loan transfer application. Irrespective of your credit rating during the initial loan application, if the rating dips by the time of transfer, banks might reject your application for refinancing.
• You should either be employed by your current organization for a certain number of years or your company should have been operating for a time period specified by the lender. This period is generally 2 years.
• You should have some monthly repaying capacity or the required minimum salary.
• Some banks may also require a minimum gross family income specified by the lender.

Your home loan balance transfer is treated similar to a fresh home loan application by the bank you are transferring the loan to. Therefore, while applying for your home loan to transfer to another bank, all the documents provided during the initial home loan application need to be resubmitted. These documents are then revalidated and vetted by the bank or NBFC providing the loan transfer facility. Documents are the most important element while taking up a loan because they best help the bank to identify the loan borrower to make sure of their loan borrowing and loan repayment capabilities. The prerequisite key documents for home loan transfers are the following:

• Passport-size photographs
• Completely filled application form for transfer issued by the financial institution.
• Latest three months’ Salary Slips indicating break up of Gross salary that is the Basic Pay, House rent and Net Salary after deductions, if any.
• Six months’ bank statement, reflecting salary credits updated within 15 days before the loan application.
• Identity Proof (Any One): Pan Card, Passport, Driving License or Voter’s ID card or employee identity card (as identity proof and signature proof in case of government employees).
• Proof of address
• Proof of Age (Any One): 10th or 12th Marks Cards, PAN Card or Voters ID Card.
• If you are a self-employed professional or businessperson, then instead of Points (3.) and (4.), you need to provide documents proving the existence of your business (for businesspersons) and academic qualifications (for professionals) ; and financial statements for both.
• Bank statements from wherein the home loan EMIs were deducted amounting to last 12 months of the account.
• The Loan statement copy and complete set of documents relating to the property that is currently in possession of the present home loan lender.

Home Loan Balance Transfer Rates of Top Lenders

Home Loan Balance Transfer Interest Rates as of 5th October 2021.

The housing loan balance transfer rates in the table are subject to change anytime without prior notice

Guiding Steps to Home loan Balance Transfer:

Due to unalike interest rates offered by different banks and loan lenders for existing and new customers, several customers get upset with their high home loan interest rates. This is the point when you can consider a switch between banks and transfer your home loan to a bank offering lower rates compared to the existing one. Here is a guide to get you in the clear about Home loan Balance Transfers-

Step 1: Analyze cost benefits being offered Decide the viability of transferring your home loan by analyzing the current situation. Here are some guidelines to help you with the analysis:

• On home loans with fixed interest rates, the lender will charge the borrower with a pre-payment penalty to transfer the loan.
• Whereas, on floating home loans of high value and interest rates, generally no penalties are charged. Hence, transferring your loan to a lower interest rate will be beneficial.
• Transferring to long tenure loans are beneficial too as longer time period implies higher benefits and lower EMIs.
• Also, do keep an eye out for hidden costs in the process.

Step 2: Get NOC from the existing bank Getting a No Objection Certificate (NOC) from your current home loan provider is a key step in the home loan balance transfer process. The other document that is necessary to complete this step of the balance transfer system is a foreclosure letter along with the complete list of documents held by the bank as well as your payment history. In some cases, your current bank may try to retain your business by offering you a reduced interest compared to what you are currently paying. Make sure you analyse such an offer as well as other offers thoroughly before settling on a specific one.

Step 3: Apply To New Bank Now you must have all the required documents ready to transfer existing home loan to another bank of your choice. You will also require getting a No Objection Certificate from your housing society or builder to be submitted as a proof of ownership to the bank along with all other documents. Then, bank will check your ability to pay the monthly installments. While making the application for balance transfer, you can decide to top up the balance on your home loan, reduce tenure or change your home loan EMIs.

Step 4: Credit Approval At this step, bank will evaluate your application and decide your eligibility for home loan transfer. Extensive background checks and history assessment will be carried out before they give you a credit approval. These verifications include re-evaluation of your home loan, checking your credit history, checking the authenticity of ownership and document valuation. Once the issues related to Credit Approval are resolved, the home loan provider would provide you with documentation that mentions key information such as the new loan interest rate, tenure and other features. Once this step is completed it is time you decided whether to go through with the balance transfer to stick to your current loan provider.

Step 5: Documentation with Chosen Loan Provider At this point, if you decide to finalise the home loan transfer process, you would be required to complete the documentation process with your selected loan provider. They may require a few extra documents to complete the whole transfer process. Here, you have your home loan transferred at a low interest rate and better benefits.

Banks are very careful when allowing shifting your home loan, especially banks which take on the responsibility of the transferred loan amount. And that is where PaisaBazaar can help you.

Our Home Loan Balance Transfer Calculator can help speed up your decision-making process by sifting through all the offers available based on the information provided by you. Our online tool automatically generates a comprehensive comparison report based on your requirements to help you make an informed decision. Our calculator takes everything into consideration, such as your total and outstanding loan amounts, remaining loan tenure and the existing rate of interest on your home loan. We will also provide you with the fine print of the transfer agreement to aid your decision.

Q. When is a home loan balance transfer a good idea?
Ans. The key reason for transferring a home loan from one lender to another is to benefit from a lower interest rate provided by the new lender.

Q. Is there a limit to the amount I can transfer?
Ans. Yes. The maximum balance transfer amount is equal to the outstanding amount of the home loan.

Q. When should I not consider transferring my home loan?
Ans. You must not consider shifting your home loan if one of the following is applicable in your situation:

• You have been repaying the loan for a long time now
• Your current bank has a prepayment penalty
• You are planning to move out of the property in the near future

Q. Does my current credit score affect my chances of successfully completing the transfer?
Ans. In case your credit score has dropped significantly since you applied for the initial home loan, it might affect the process. As the balance transfer process works similar to applying for a new home loan, your credit score and history would play a key role in determining your eligibility for the home loan balance transfer.

Q. Will my refinance be affected by the prepayment penalty?
Ans. Most banks today wont have a prepayment penalty in the first place. But if your bank has it, then you can ask your new lending bank to take it into account. This will vary from bank to bank.

Q. How much time will it take to transfer my home loan from another bank?
Ans. Transferring a home loan is treated like buying a home loan all over again by the bank, the loan is transferred to. Therefore, it might take 15-20 days for the home loan to be transferred to the new bank.

Q. What is a top up loan?
Ans. For instance, if the property value of your home climbs much higher from its original price at the time you took the home loan and you might require more finance for your home renovation. In this situation you can add to your loan. This is called a loan top up.

Q. Can I get a top up on my loan along with the transfer?
Ans. Yes, depending upon your eligibility, the loan issuer can offer you the option to top up on the home loan to be transferred to the new bank but there may be processing and legal charges applicable.

Q. What processing fee is charged on home loan transfer?
Ans. Processing fees on transfer of home loans range from 0.5% to 1% of the loan amount.

Q. Is there any interest saving in EMI by home loan transfer to another bank?
Ans. The precise reduction in EMI varies based upon:

• Outstanding principal amount
• Existing rate of interest charged by your bank
• Rate of interest presently offered by the new bank
• Your current EMI

Q. What steps does a home loan takeover involve?
Ans. The simple steps following below are involved in transfer of your loan:

• Check the current rate to calculate interest savings
• Estimate the cost based on the various fees and charges
• Shortlist a new bank and decide if a top up loan is needed
• Collect the property documents deposited in your existing bank, and the foreclosure letter as well
• Apply for loan with the new bank along with the Xerox copies of property documents
• Obtain sanction letter to execute new loan agreement
• Get disbursement from the new bank by way of cheque or demand draft in favor of existing bank, and then deposit the same
• Obtain and deposit property documents from old bank to new bank

Q. What precautions must be taken when transferring a home loan?

• Check and analyze the interest rate track record of the new lender and ensure that the lower interest rate offered by the new lender is genuine. You can compare offers by various banks on our website and ask our expert team for suggestions and clarifications.
• Assess the service quality of the new lender to make sure they meet your expectations. Lower rates shouldnt come at the expense of below par service.
• Check the benchmark rate that is the base rate and the prime lending rate. Loans which are base rate benchmarked are more transparent and are preferred over lending rate benchmarked loans.
• Whether the spread is variable or fixed is an important question. The two parts of an interest rate applicable on floating rate loans consists of a benchmark rate along with the spread above it. The benchmark rate is expected to change over time, but the spread is supposed to stay fixed, except in case of default. You must avoid loans having variable spreads and opt for floating rate loans that have a varying interest rate only with a change in the benchmark rate.
• Estimate transaction costs which would include the processing fees, documentation charges and stamp duty.
• Issue notice to the existing bank prior to applying for another. Check your loan agreement carefully and make sure that due notice is given to or waived by your existing bank.