Summary of this article
Existing home loan holders who want to transfer their home loans to a different lender need to evaluate three specific situations that make loan transfer advantageous for their current situation.
Numerous banks, along with housing finance companies (HFCs), are currently offering home loans with interest rates as low as 7.5 percent annually. The attractive home loan interest rates available today make it an ideal time for both new and existing borrowers to consider home loans and balance transfer facilities, which can help reduce their interest payments and improve service conditions.
Existing home loan holders who want to transfer their home loans to a different lender need to evaluate three specific situations that make loan transfer advantageous for their current situation:
1. Significant Reduction in Interest Burden
Existing home loan borrowers usually transfer their loans to new lenders because they want to minimize their total interest expenses, especially when they initially took their loans at higher interest rates. The balance transfer option proves advantageous for those who now qualify for home loans with reduced interest rates since their credit rating has improved.
New lenders treat balance transfers as fresh home loan applications. So, they typically impose processing fees along with administrative and other charges during home loan balance transfer application processing. The transfer of home loan balance becomes viable only after the total interest cost reduction surpasses all the costs involved with the procedure.
When existing home loan borrowers move their loans to another lender, they can explore the home loan overdraft option which their new lender may provide as a loan variant. The home loan overdraft account establishes itself as either a savings or current account that connects directly to your new home loan account.
Home loan borrowers can place extra funds into the overdraft account for later withdrawal needs. The interest calculation of home loans reduces because the outstanding loan amount includes the balance maintained in the overdraft account which leads to lower interest costs for the borrower. Home loan borrowers obtain the benefit of loan prepayment without losing liquidity through this arrangement.
2. Transferring Loan During Initial Years
Home loan balance transfer during the first few years of the loan period generates more substantial interest cost savings because most of the interest payments occur in the early phases of the loan duration. The transferred home loan should maintain the same repayment period as the remaining duration of the existing loan because extending the repayment duration results in higher interest charges.
Borrowers who want to decrease their monthly payment should choose a longer repayment period for their transferred loan. Borrowers who want to minimize their total interest cost should make prepayments during the future when they have extra funds available.
3. When Your Current Lender Can’t Fulfil Your Top-Up Loan Needs
Throughout the home loan tenure, existing borrowers need additional funds for various expenses, including home renovation, debt management, education of their child, vehicle purchase, and medical emergencies. Lenders provide supplemental home loan options to their current borrowers when these clients need extra funds.
Top-up home loans function as personal loans without any limitations on how borrowers use their funds except for speculation. The interest rate of top-up home loans remains equal to the base home loan interest rate or slightly higher. Existing home loan borrowers can use top-up home loans as their most affordable credit option.
Lenders need their existing borrowers to maintain stable repayment habits and complete a specified number of EMIs from their existing home loan before they can obtain top-up home loans. Nowadays home loan lenders allow their customers to obtain top-up home loans even when they transfer their existing loans.
Borrowers who face top-up loan application rejection or receive inadequate loan amounts at elevated interest rates from their current lender can switch to another lender for their top-up loan needs.
