Home Loan Balance Transfer In 2023: Pros, Cons And Eligibility

When Should You Opt for a Home Loan Balance Transfer?

Home loans are an expensive and long-term commitment. When a borrower agrees to take on the responsibility of a home loan, they essentially decide to agree to pay a considerable portion of their monthly income as EMIs. Sometimes, even when a borrower can comfortably afford their home loan EMIs, honoring the commitment for a period of 20 to 30 years can become stressful. To keep this stress to a bare minimum, home loan borrowers are advised to negotiate with their lenders for the lowest home loan interest rate they can get. A low home loan interest rate not only helps borrowers keep their EMIs affordable but also helps them reduce the total interest outgo on their loan and keep the cost of borrowing the loan to a bare minimum.

In their hurry to legalise their home purchase, many home loan borrowers make the mistake of accepting the first loan offer they get from the first lender they apply to. Lack of research and unavailability of time are the two most common factors responsible for home loan borrowers paying a much higher interest rate on their home loan than they can get. Home loan borrowers who are repaying their home loan at a much higher home loan rate of interest than they can get can benefit from a home loan balance transfer.

This article explains what is a home loan balance transfer alongside discussing the balance transfer process and the home loan balance transfer eligibility criteria set by lenders. If you think your current home loan EMIs are becoming unaffordable for you and you want to benefit from lower home loan EMIs, read on.

What is a Home Loan Balance Transfer?

Home loan balance transfer, also known as home loan refinancing, is a facility that allows current home loan payers to transfer the remainder of their home loan from their parent lender to another willing to refinance their loan on more lucrative loan terms and conditions, such as lower home loan interest rates and an improved tenor. When a borrower opts for the home loan refinancing facility, the new lender they choose to go with pays off their current lender. Once this is done and the home loan is refinanced, a borrower’s EMI obligation is towards their new lender.

Benefits of Home Loan Balance Transfer

A home loan balance transfer offers many benefits. Some of these benefits are:

1. Lower Home Loan Interest Rates: One of the key reasons why borrowers around the world choose to refinance their loan is that home loan refinancing gives them the chance to avail of a lower home loan interest rate than the interest rate they are currently paying on their home loan. A lower home loan interest rate can prove to be especially beneficial if you are finding it difficult to afford your current EMIs. It will also help you reduce the total interest outgo on your loan and minimize the cost of borrowing the loan.
2. Longer Repayment Tenor: When home loan borrowers refinance their home loan, they are given the option of choosing to change their loan tenor. Those who can afford to pay higher EMIs can shorten their loan tenor to become debt-free quickly. On the other hand, borrowers finding it difficult to pay their current EMIs can choose to go for a longer tenor to minimize their EMI burden.
3. Top-Up Loan: When opting for home loan refinancing, home loan borrowers are given the option of availing themselves of a top-up loan. Some lenders give borrowers the option to avail of a top-up loan up to Rs.1 Crore. This top-up loan comes with zero end-use restrictions. Borrowers can use the money for whatever purpose they like. However, top-up loans increase a person’s EMI burden and therefore, one must avail of a top-up loan only when one is financially prepared for the responsibility.
4. Better Service: A lot of times, home loan borrowers choose to switch lenders simply because they are tired of their current lender’s mediocre customer service. By opting for a home loan balance transfer, borrowers can choose to transfer their home loan to a lender known for exceptional customer service.

If reading about these home loan benefits has convinced you that you want to opt for this facility, you must inform yourself about the home loan balance transfer eligibility criteria. Apply for home loan refinancing only if you meet these eligibility requirements; inability to do so can lead to your home loan balance transfer application getting rejected.

Home Loan Balance Transfer Eligibility Requirements

Home loan balance transfer eligibility requirements vary from lender to lender. Thus, it is best that borrowers check with the lender they are applying to. However, most lenders require borrowers to meet the following eligibility requirements to be eligible for a home loan balance transfer:

1. The home loan balance transfer applicant must be a citizen of India and must be already repaying a home loan.
2. They must be between 21 and 65 years of age. Again, age requirements vary from lender to lender. So, one must check the age requirements with their preferred lender before applying for a home loan balance transfer.
3. The applicant must have a CIBIL score of 750 or above.
4. They must meet their lender’s income requirements for the loan amount they wish to borrow.

These are the generic home loan balance eligibility requirements. If you are planning to opt for home loan refinancing, select the lender you wish to go with and check their eligibility criteria before getting started with your home loan refinancing application. This will enhance your chances of home loan approval.

Home Loan Balance Transfer Process

Follow these simple steps to transfer your remaining home loan amount to another lender:

1. If you wish to opt for home loan refinancing, the first thing you must do is inform your current lender that you wish to transfer your remaining home loan to another lender. You can inform them by either filling out an application form (if they have one) or writing them a letter. List out reasons in support of your decision.
2. Once your current lender receives your letter or form and agrees to allow you to transfer your home loan to another lender, they will release a No Objection Certificate (NOC) or a consent letter. The NOC is important, without it you won’t be able to transfer your home loan to another lender.
3. Once you have an NOC from your current lender, you can apply to your new lender. All lenders treat home loan balance transfer applications as new home loan applications. So, be prepared to hand in all the documents, including income-proof, address-proof, KYC, and property documents, that you had submitted when you applied for a home loan the first time. Your new lender may ask you to submit some additional documents. So, talk to them and understand their document requirements before initiating the home loan balance transfer application. Keep all the documents ready to experience quick loan approval.    
4. At this point, you will be required to pay the home loan balance transfer fee and wait for your new lender to approve your home loan balance transfer request.
5. Once your new lender accepts your loan application, they will pay off your old lender, who will then close your loan account with them.
6. Your home loan EMI obligation will now be to your new lender.

Summing It Up

The home loan balance transfer facility is an important and highly beneficial facility that can help home loan borrowers in many ways. However, anyone opting for a home loan balance transfer must keep a few things in mind.

To start with, home loan refinancing draws a fee. Lenders charge this fee as a percentage of the remaining principal amount and therefore, the home loan balance transfer fee can turn out to be a substantial amount. Borrowers planning to refinance their home loan must use a home loan balance transfer calculator to work out their balance transfer fee.

They should go ahead with home loan refinancing only when the money they will save by refinancing their home loan is much higher than the home loan balance transfer fee they will have to pay. Further, refinancing one’s home loan makes most sense during the early years of one’s home loan tenor, i.e., when a considerable portion of one’s home loan interest is yet to be paid. Transferring your home loan when you have already paid the majority interest will not help you save any money. Keep these things in mind to make the most of this highly beneficial facility that almost all lenders offer these days.

(Note - This article is written by Brand Desk.)