One of the best ways to reduce the interest rate once you’ve already taken a home loan and already repaying it is balance transfer. Read this post to know what balance transfer is, its benefits, and how to go about it.
Home loans involve lakhs and crores of rupees. This means that the smallest of reduction in the interest rate on your home loan could help you save a lot of money. While there are a few ways to get a loan at a lower rate when you are looking for one, is there a way to reduce the interest rate once you’ve already taken a home loan and repaying it?
Yes, there is. A balance transfer is a great option which helps you reduce the interest rate on your home loan. Continue reading to what it is, its benefits and how to get it done.
What is Balance Transfer of Home Loan?
A balance transfer is a process of transferring your unpaid loan amount to another lender who is offering the loan probably at a lower rate of interest. The lender to which you transfer the credit repays your loan to the old lender, and you are then required to pay your loan EMIs to the new lender.
Apart from getting a better deal, a balance transfer can be used for many other reasons. For instance, you can switch to another lender if you do not like the customer service of your current lender.
Benefits of Balance Transfer of Home Loan
Needless to say, the most important advantage of a balance transfer is savings. For instance, if you’ve taken INR 50 lakhs home loan at 10.5% for 20 years, throughout the loan tenure you’d pay around INR 69.80 lakhs as interest. However, if there is a lender offering loan at 10.2%, the interest payable over 20 years would fall to INR 67.39 lakhs, allowing you to save around INR 2.4 lakhs.
Apart from the savings, another essential benefit of loan balance transfer is top-up loans. A top-up credit allows you to borrow more money over an existing loan. In case of balance transfer of home loans, this means that the new lender would also offer a higher loan amount than your current mortgage if you need. Most lenders in India now offer such loans.
How to Use Balance Transfer?
Before you start searching for a lender offering home loan at a lower rate, you should first do a cost-benefit analysis. There are a few crucial factors that you should take into consideration before initiating the balance transfer. The difference in the interest rate of both the lenders, remaining tenure of the loan and the amount you’ve already paid are some critical considerations.
This is mostly because your current lender would charge a home loan balance transfer fee which might be equal to the amount you are planning to save with the transfer. Generally, balance transfers offer maximum benefit is you are still in the early years of the home loan.
Once you’ve made sure that you’d surely save a decent amount of money with the transfer, you can then get in touch with the new lender to discuss your requirements. Know that balance transfer works just like a new loan. So, you’ll have to go through all the documentation and approval process again.
Loan balance transfer is a great feature that can help you save a lot of money. However, you need to be smart to ensure that you get to experience its benefit. Keep the information mentioned above in mind before opting for a balance transfer to take advantage of this facility in the best way possible.