The Covid-19 pandemic brought with it turmoil from which the world has not yet recovered. But if you have got your loan cycle running, I’ve good news for you. Did you wish you had taken your home loan from a different bank? You can switch your home loan amount to a new lender. Especially, when the banks are competing to offer you lower interest rates.
What is a home loan balance transfer?
A home loan balance transfer, also known as refinancing, happens when the unpaid principal amount is transferred to another bank. Transferring the outstanding amount to another lender offering a lower interest rate, favorable repayment terms, no processing fees, etc. helps in reduced EMI payments. In layman’s terms, if you have an existing loan running, you can transfer the unpaid principal amount to a different lender or bank offering a lower rate of interest – or for any other reason you want. This transfer of loan is to avoid high-interest rates, avoid unfavorable repayment terms, longer repayment tenures, etc., offered by the current bank or lender.
For someone who decides to take a home loan, the interest rate is a matter of concern as it involves a significant amount of money. The rate of interest usually ranges from 6.80% to 12%. It is advisable to check for the lenders who offer lower interest rates. A common way to reduce your interest rate is, either to talk to the current bank or lender to reduce the interest rate or, go for a home loan balance transfer.
A home loan balance transfer works best when you do it in the early stages of your home loan. Even a reduction of 20 basic points is beneficial. For example, if you need to pay an outstanding loan amount of Rs. 20 Lakhs with an interest rate of 12% to your current lender for a tenure of 15 years. You need to pay a total amount of Rs. 2,240,000. Now, if you transfer your outstanding loan amount to a new lender offering a 10% interest rate, you would save an interest amount of Rs 6 Lakhs.
What are the benefits of a Home Loan Balance Transfer?
The most important factor in the entire process of a home loan balance transfer is saving money. Before doing a home loan balance transfer, you must ensure that your new lender is bringing down the overall cost of your acquisition. Listed below, are the benefits you acquire from a Home Loan Balance transfer:
- It helps to reduce your monthly EMIs.
- Offers lower interest rates than your current lender
- Enables you to pay a portion of your outstanding loan amount as a lump sum to reduce your EMIs and tenure.
- Better repayment schedule
- Better repayment terms and conditions
- More favorable repayment terms like zero penalties, etc.
Why it’s the best time now for Home Loan Balance Transfer?
The Covid-19 pandemic has a visible impact on the economy. There is a huge reduction in prices and interest rates in the home loan sector. Especially, when banks are offering a special offer on interest rates, a greater number of people are opting for home loan balance transfers. There is a notable difference between the interest rates offered earlier and now. Currently, the lowest interest rate offer by the banks is 6.65% p.a. (depending on the nature of the application and applicant’s salary, credit profile, etc.)
It is indeed the best time for a home loan balance transfer as you can potentially clear off your home loan sooner and at a lower overall cost. It will also reduce the burden of your monthly EMIs and you will eventually end up saving money on your interest amount. If you have any further questions feel free to drop them in the comments below.