22 October, 2018 Home Loans
With the evolution in our financial sector, different schemes and offers have been adopted by banks and NBFCs to smoothen financial transactions. One such scheme is ‘Balance transfer of loan’
With the evolution in our financial sector, different schemes and offers have been adopted by banks and NBFCs to smoothen financial transactions. One such scheme is ‘Balance transfer of loan’ which is being offered by all NBFCs and banks and offers a very lucrative facility for individuals. In this offer, the borrower /customer transfers his outstanding loan amount to another bank or financial institution in order to avail a better rate of interest and other better features and benefits. Not many people are aware of this feature offered by banks and hence it is not availed extensively by customers. However, it is recommended that every individual should opt for a balance transfer at least once in his/her loan tenure. The primarily objective of balance transfer should be to reduce the debt and one should not go for a top up loan as it will increase your burden of debt and not minimize it.
How ‘Balance transfer’ helps:
An example of a balance transfer is: If you have taken a home loan of Rs. 25,00,000 for the tenure of 20 years at 13.5% interest rate, your monthly EMI comes to Rs. 30,184. The total interest you would pay for the duration of your loan will amount to Rs. 47,44,248. If after 1 year you opt for a balance transfer the rate of interest would drop from 14% to 12% and you will make a saving of Rs. 3,30,000 and your monthly EMI will also come down.
The following are the advantages of opting for a ‘Home loan Balance transfer’
1. Lower Rate of Interest: The primary advantage of a balance transfer is a subsequent decrease in the interest rate.
2. Lower EMI: Higher EMI is always a burden for most customers. If you do a balance transfer of your loan in the right manner, chances are that it will lower your EMI significantly. Even a 5% savings every month for the next 10 years monthly is a huge saving in your account.
3. Top-Up loan option: With easy monthly instalments and affordable interest rates, having a balance transfer of your home loan will eventually increase the amount of the top-up loan you can avail from the bank.
The process of balance transfer:
To get the best balance transfer deal, you should do a bit of financial shopping. You can compare the offers of different banks and NBFCs. You should also keep in mind that some lenders charge a processing fee on the outstanding amount. It should be noted that every lender have their own credit assessment system and the process of balance transfer is likely to include a peek into the details of your bank account and your credit score.
Tips to follow before opting for a balance transfer
1. Loan Tenure: Home loan balance transfer works best when you have a long loan period remaining to be paid. For e.g. If you have paid for 20 years for a 25-year home loan, then it doesn’t make much sense to go for a balance transfer.
2. Prepayment Charges: Usually before opting for balance transfer you have to first close the loan with your existing lender. There is a prepayment charge which nowadays is flexible. Make sure that you pay the minimum pre-payment charges.
3. Amount Saved: The primary objective of a balance transfer is it helps in saving money by reducing your interest rate and EMI. You can use a home loan calculator to find calculate your outstanding loan with your current bank and the loan offer you are getting in your new bank. If you see there is a considerable amount of money you can save, then it is a viable option to opt for balance transfer.
4. Compare and select the best lender: As the home loan market is highly competitive, you should always compare the offers being given by various banks and NBFCs. Choose the lender who is offering the best price and lowest processing fee.
The best thing about balance transfer is that you can opt for any number of transfers as there is no specific limit. Usually, it is advisable to opt for this every 3-5 year provided you get a better rate of interest and can save money and enjoy the benefits of the balance transfer.