Transfer an existing Home Loan


#1

Hi, I have an existing home loan taken in the year 2015 at fixed interest rate for 10 years @9.85%. Presently the interest rates have gone down. Would it be prudent to transfer the loan to another bank. Please advise.

Thanks
Deepak


#2

@Deepak Home loan is like a long term financial obligation. Any small rise of fall in the interest rates is therefore part a home loan plan. Unless the interest rates drop more than 0.75 to 1% from your prevailing interest rate, even considering a home loan refinance is a big no.


#3

Hi Deepak,

You can consider a balance transfer for your Home Loan. The process by which the unpaid principal amount of the loan is transferred to a different lending bank for a lower rate of interest is called balance transfer.

A Home Loan balance transfer primarily depends on the following factors:
§ The difference in the interest rates.
§ The loan amount that is yet to be paid.
§ How many years remain in the loan tenure.

In case the unpaid amount of the loan is low or if the remaining loan term is not too long, then a balance transfer may not be the best choice. Remember to also check if your lending bank charges a processing fee for balance transfer of your Home Loan.

A balance transfer will be most beneficial if you are in the early phase of your Home Loan, rather than later in the loan tenure.

Remember that for a Home Loan balance transfer you need go through all the procedures involved in a Home Loan, once again. These include a credit appraisal, legal verification of property documents and technical evaluation with the new bank. The loan will be approved only when the bank is satisfied with the verifications. This also includes paying a processing fee from anywhere between 0.5%-1% of the loan amount. You could ask your new lender to waive this off.

Some banks charge a prepayment penalty for a balance transfer. This can vary anywhere between 2%-5% of the principal outstanding amount of the loan and depends on your lender. However, recently many institutions and some banks seem to be waiving this off for their customers.

The lender that you are shifting to usually offers you a loan based on the current Home Loan rates that their customers enjoy. You can, of course, negotiate and check if they will give you lower rates

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Cheers,
BB Expert