A balance transfer procedure is very similar to availing a new home loan and the interim steps like documentation, verification, field investigation, legal and technical evaluation follow here as well
Due to difference in interest rates being offered on home loans, many borrowers look to avenues to get a reduced rate that can lower our monthly EMI expense. Balance transfer pops up in our minds as the most viable solution at this time. However, before evaluating balance transfer, do discuss the option of re-pricing with the existing loan provider. It is advisable to continue with the same financier if you are happy with their servicing standards and they come close to your expected interest rate post re-pricing. This is because there is more to it than what meets the eye. Let us see how!!
Some of the most common reasons why people switch their loans are:
Competitive rates: If you are servicing a loan at a higher interest rate and see there is a distinct fall in market rates, you may consider going in for a balance transfer.
Want to negotiate an extended tenure: When you want to extend the repayment tenure to reduce your monthly outgo, but your existing financier does not allow it, you may wish to shift the loan to an institution which is ready to offer higher tenure.
Requirement for a top-up loan: When you require additional funds for reasons like business expansion or any other financial need, you may approach your financier for a top up loan. This shall be over and above your existing home loan. Depending on its policy, you may or may not be eligible for a top-up loan for various reasons. If you are denied a top-up or the sanctioned amount does not seem to suffice your need, you can consider transferring the loan to another institution.
Improved services: If you are unsatisfied with the way your lender has been servicing your account or if it has been unresponsive and you have been subjected to undue delay in communication of important information, it may be time you reconsider your decision. After all, you are in this relationship not for a day or a month but for a number of years.
How does balance transfer happens?
A balance transfer procedure is very similar to availing a new home loan and the interim steps like documentation, verification, field investigation, legal and technical evaluation follow here as well. But along with these, you will be needing a no objection certificate from the existing loan provider which may take a few days. Also, one should remember that all original documents should be collected from the existing financier and submitted to the new loan provider.
How does it impact your EMIs and interest repayment? Let's see with an example.
Suppose, you have availed a loan of Rs 50 lakh from a financial institution and after repaying it for five years, you plan to transfer the loan to another institution at a lower rate. Let us see the calculation and savings in both the cases, first being if you choose the same tenure of 20 years for repayment and second, if you choose a balance loan tenure of 15 years to repay the new financial lender. This is taking into consideration that you have already paid the interest for five years and now only want to go for the balance tenure with the new.
Your EMI in both the cases is reducing after balance transfer (assuming that rate of interest does not change during the loan tenure). On opting for 20 years loan tenure, the EMI goes substantially down while in case of 15 years, there is marginal reduction. However, if you may analyse, in case of 20 years, you end up paying higher interest component, i.e. Rs 73.25 lakh.
While at the end of 15 years, it computes to Rs 60.94 lakh. As you may see, you are then saving more than Rs 4 lakh on the interest component by opting for a loan transfer for the balance tenure, i.e. 15 years.
While people prefer to go with original tenure to reduce the EMIs significantly, but in case you really wish to transfer, it is advisable to opt for the balance tenure so that you receive the interest benefit or you may end up paying higher interest end of loan tenure.
Things to remember before and during balance transfer process:
Explore option of re-pricing with existing loan provider: Before evaluating balance transfer, do discuss the option of re-pricing with the existing loan provider. It is advisable to continue with the same financier if you are happy with their servicing standards and they come close to your expected interest rate post re-pricing. In case such an option is not viable, you may search for home loan provider offering lower rate or better customer experience. But do remember, rates can always change during such a long loan tenure.
Risk of loan documents misplacement: In balance transfer, movement of original documents happens from the custody of one financier to another. And during such transfer of original documents, human errors or process errors might happen that can lead to original documents getting misplaced or lost. One should thoroughly verify the certified list of documents (LOD) with the documents being transferred to avoid any mishaps.
Transfer in early stages of loan tenure is advisable: In initial years of home loan tenure, interest forms major component of the EMI while the principal component is lower. So, if you make a transfer during initial years, the interest component would reduce substantially due to the difference in rates, providing you with a cost benefit. But, if he/she does so in the later stages, when a large part of the interest component has already been repaid, you may end up paying higher interest.
Pre-payment Charges: If your loan agreement has a pre-payment charges clause and the lender is charging a sizeable amount, this may lead to negligible savings when moving the loan to another financier. In this case, you should re-consider the decision as it may not be a good idea to go ahead with the transfer.
Processing fees and schedule of charges: Generally, all the charges applicable for a new home loan like processing fee, legal charges, etc. are applicable on balance transfer cases as well. These are generally well explained in the schedule of charges furnished by the financier. Ensure that there are no hidden charges other than stated in the schedule of charges.
One should understand that balance transfer is a lengthy and time-consuming process and its benefits should be carefully weighed before taking any steps towards it. Be clear on the terms and conditions stated by the new lender. In case you do not agree, discuss it with the officials before you get involved.
As a word of caution, don't blindly go for a loan transfer just because you see another lender offering you a lower interest rate. A final decision is best based on probing further and getting responses to all your queries and your unique situations.
The writer is Shaji Varghese, business head andG M, PNB Housing Finance
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Loan balance transfer")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}