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What is the right time for Home Loan Balance Transfer?

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Author - Vinod Sharma
What is the right time for Home Loan Balance Transfer?

What do we do as a last resort, when we are not satisfied with our current service provider? We change the service provider, right? Similar is the case with the home loan. When the existing terms, conditions, interest rate and charges are not upto the mark and there are lenders who are offering better deals then we transfer our home loan. This process is known as Balance Transfer

Balance transfer of a home loan refers to a mechanism through which individuals transfer their loan from one lender to another to save on interest paid or to get better facilities.

Under balance transfer, the unpaid principal loan amount is transferred to another lender.The lender that had originally extended the loan gets the unpaid amount and the borrower have to, in turn, now pay the EMIs at the new rate to the lender that has taken up the loan.

Most often borrowers are confused about when to transfer the home loan. To clear the air, let's understand what is the right time for the balance transfer

  • Lower interest rate

    The interest rate is the most important charge associated with the loan. It is the additional cost borrower will have to pay for opting for a loan. A slight change in the interest rate can impact the overall interest amount by a huge margin. For example 

    Description A B
    Loan Amount 10,00,000 10,00,000
    Tenure 10 Years 10 Years
    Rate of interest 6% 6.5%
    Interest to be paid 3,32,246 3,93,302
    Monthly EMIs 11,102 11,611

    As clear from the above illustration, the change of the 1% in the interest rate resulted in a massive difference of 61,056 in the interests paid.

    Quick Tip: Home Loan balance transfer must involve a cost-benefit analysis. The difference in the interest rate should not be the only parameter for deciding on transferring the home loan. Borrowers must take into account the cost involved in the transfer of a home loan and the processing fee of the balance transfer Generally, it is better to transfer the home loan in the initial years of repayment tenure.

  • Higher outstanding loan amount

    If there is a higher outstanding amount, then the balance transfer will help in reducing the interest paid amount. However, in the case of the lower outstanding loan amount, the balance transfer may not turn into a profitable deal due to the transfer charge and processing fee of the new lender.

  • Cost and Terms involved

    There might be cases where the services the bank is offering or the cost that the bank is charging are not as per the borrower’s expectations. And the borrowers know the lenders who are offering better services and charging less, in all those cases if the cost involved in the transfer can be covered, then the borrower must prefer the home loan balance transfer. 

    Balance transfer should only be considered after proper cost and benefits analysis. If balance transfer is not bearing the right results, then borrowers may also consider the option of resetting the loan. Borrowers are required to just write a letter to the bank authorities pitting their home loan to that of the other bank and many a time, banks consider interest or terms or conditions change request. 

About Author

Vinod Sharma
Vinod is an experienced Content Writer and you will find him often engrossed in reading marketing and finance blogs. He is hardworking and determined to achieve what he wants. In his free time, he likes creating memes and watching cricket.

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