Home Loan Balance Transfer refers to transferring your existing Home Loan/ Mortgage Loan from one bank/NBFC to another.
The interest rate of an existing home loan and the flexibility the financing institution offers determines whether one continues with the same loan or thinks of a switch.
For a lower interest rate and/or other advantages, customers can transfer the outstanding balance to another financial institution or bank. The new finance company pays the old lender the outstanding principal due on the loan.
Benefits of Home Loan Balance Transfer
- Reduction in interest rate from high rate to as low as 8.05% per annum
- Reduction in monthly EMI by upto 5% depending upon the rate difference, balance tenure and EMI
- Option to avail top up loan at same rate as home loan rate (8.05% to 8.8%) subject to eligibility conditions and loan to value ratio
- Lower interest rates and other discounts like nil processing fee offered by another lender
- Option to opt for smart saver home credit facility or maxgain facility to save interest
- Balance transfer options available at various banks like SBI, Bank of Baroda, HDFC, ICICI and others.
Eligibility
You can opt for home loan balance transfer if you have outstanding home loan in one bank. Basic eligibility criteria are age, income, employment history and loan to value ratio. Other main eligibility factors which are important for refinance home loan –
- Applicant must be running an existing home loan from another lender
- Some lenders may require that an applicant should have paid at least 6 to 12 EMI’s on existing loan before opting for balance transfer. However, at times, this condition may be waived and home loan takeover may be possible even if the loan has not run for 6 – 12 months
- There should not be any default in payment of EMI on existing loans
- In case of under construction property, the project must be approved with the new lender. Note that balance transfer of home loan on new property whose possession has been handed over but registration has not been done may not be possible
- In case of ready property, registration should have been completed
Application
A new housing loan application must be made to the new lending institution. Some housing finance companies offer online application facilities to complete this process.
Documents
Documents such as photograph, bank statements, photocopies of identity and address proof, income documents need to be provided. In addition, the following documents will be required:
- A letter on the letterhead of the existing lending institution stating the list of property documents held by them.
- Latest outstanding balance letter from the lending institution.
- Photocopy of property documents.
Foreclosure of Existing Loan
Foreclosure formalities need to be carried out for the existing loan. The new lending institution may make a payment of the outstanding principal amount in order to release the original documents from the previous lending institution.
New Loan Agreement
A new loan agreement is entered between the new housing finance institution and the borrower.
The following are the points to be noted before doing Home Loan Balance Transfer.
1) Reason to Transfer
Most borrowers shift their home loans from one lender to another because of a significant difference between the rates that their bank/housing finance company is charging its old customers compared to the one being levied on the new customers.
A difference in rates might also arise between your lender and others. If significant savings can be made, a shift is advisable. If a customer finds it difficult to pay the EMI, he may want the lender to increase the tenure to reduce the installment. If the current lender refuses, the customer can shift to another. Poor service standards also warrant a shift.
2) Check the rate
Make sure that the bank to which you plan to shift has already increased its rates in the current wave of hikes. The move will be futile if you shift to another bank and it raises the rates soon after. Transfer only if there is a significant difference, at least 50 basis points, in the interest charged by your current bank and that offered by the new one.
3) Negotiate with Lender
If there is a huge difference between the rate you are paying and the one being charged from new customers, try to negotiate with the current lender. Many times, banks agree to lower their loan rates because they don’t want to lose customers. Banks also offer the conversion option, wherein you pay a fee ranging from 0.5-1.5% and shift to the lower rate (charged from new customers). At this point, it is important to do a cost comparison between.
4) New Lender’s Conditions
Whether the new bank accepts your loan request depends on a host of factors, the most important being your repayment record with the previous lender. If it has been patchy, that is, you have been late in paying a few EMIs; your request could be turned down.
5) Procedure and Charges
Get a no-objection certificate from your existing bank. Also, obtain a document listing the outstanding principal on your loan. Submit these to the new lender, which will exercise due diligence as it does for new customers – credit evaluation, legal verification of property, and so on.
Once the paperwork at the new bank is complete, it will hand over the outstanding principal to your old lender. The latter, in return, will hand over the ownership papers to the new lender. Besides the processing fee (which may be waived), there are some other costs involved in transferring a home loan, including legal charges, valuation fees, stamp duty, etc.
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