Summary: You have decided to opt a Home Loan Balance Transfer and worried about the procedure, what are the steps involved? Most of us consider Home Loan Balance Transfers to enjoy reduced interest rates. Consider the pros and cons before you take the leap.
The most common reason for Home Loan Balance Transfer is to avail of a lower interest rate. There might be other reasons too. You might be looking to restructure the Home Loan repayment, reduce the EMI, and extend the tenure, as you are facing difficulty in paying the original EMI.
Go to third party financial websites, and find a list of banks offering refinancing of Home Loan at lower rates. Use a home loan calculator to find out which bank is ideal for you and how much you can expect to save by switching the loan.
So what is the Home Loan transfer procedure like? And how do you make sure you’re taking the right step?
Look at The Benefits Offered
If you are transferring the loan because of lower interest rates offered, remember to take into account all related costs. Your current bank would charge a foreclosure penalty if you have taken a fixed rate loan. The new bank will charge processing fee, stamp duty for loan documents, and other charges. All these together might come to a huge amount. They might also require you to take an insurance policy on the Home Loan, or open Fixed Deposits with them for you to avail of the lowered interests facilities.
Use the home loan calculator at the bank’s website and do a thorough cost-benefit analysis.
The Loan Approval Process and Documentations Needed
The new lender will actually treat the refinancing of your Home Loan as a new application for a Home Loan. So, you need to furnish all the Know Your Customer documents, your loan repayment records from the other bank, income proof, and documents related to the property. They will do a credit check and technical assessment, and follow other verification procedures before sanctioning the loan. This could take some time, and involve fresh paperwork and formalities for you.
If you do decide to go ahead with the refinancing, here are the steps
Home Loan Balance Transfer Process
Your first step is to send an application for Home Loan transfer to your current bank. They should then provide a No Objection Certificate (NOC), foreclosure letter, a statement specifying the outstanding balance on your Home Loan, a statement of your EMI payments so far, and a list of the loan related documents available with them.
You have to submit these to the new bank, along with whatever else they may ask for. This might include your KYC documents, income proof, a no objection certificate from the builder/developer if they are being repaid through the Home Loan.
The new lender will then verify all the information, and do a complete reassessment of your creditworthiness and property. Once the loan is sanctioned, the representatives of the two banks will meet. The new bank will hand over the cheque for foreclosing the old loan and the previous lender will hand over all the relevant documents to the new lender.
Now, your Home Loan is with the new bank and you can enjoy the benefits offered by the switch.
The Home Loan Balance Transfer, also called the ‘refinancing’ of a Home Loan, may be advisable under certain circumstances. However, it may not always be the ideal solution for the problems you face with your lender.
Why would you consider Balance Transfer?
You may be unhappy with the bank’s customer service, or their unwillingness to cut interest rates for existing customers when market rates fall. The bank may not be cooperative with requests for loan restructuring or other such options when you are in financial difficulties.
Advantages of a Balance Transfer
1. When you switch your loan to another bank or NBFC, you can choose to enjoy the lowest interest rate for Home Loan.
2. The new bank might have better customer relationship.
3. They might be more cooperative, helping you deal with your difficulties in repayment.
4. They might offer lower EMI payments, and longer tenures.
5. The new lender might also offer top-up loans on your Home Loans that your current lender does not.
Disadvantages of Home Loan Balance Transfer
The switch might not really provide you with as many benefits as you thought; things might change once you understand the terms and conditions on the loan by the new lender.
1. The lower interest rates might not be good enough to make a difference
2. The bank might levy charges and fees that offset any savings you make from the transfer
3. The new lender might require you to buy insurance from companies they have tie-ups with, increasing the cost of the loan transfer
4. They might ask you to make certain Fixed Deposits with them
Things to Consider Before Initiating a Home Loan Switch
Before you decide to go ahead with refinancing your loan with a new lender, thoroughly examine the time, effort, and money involved.
Switching to a new lender is akin to applying for a new Home Loan. The bank you are switching your loan to would want all documental proof regarding yourself, your finances, and the property. They then conduct their own verifications and assessments before sanctioning the loan.
Your current lender could charge a heavy penalty for foreclosure of the loan. While the RBI has forbidden banks from charging preclosure penalties on floating rate Home Loans, there is no such rule regarding fixed rate loan. So, you would have to pay the current lender a fee for closure of the loan before term.
The new lender might reject your application for various reasons like low credit score, and problems with lower income from the time you took the original loan.
The new lender would want all the documents that are with the current lender to sanction the amount. The old lender would want a cheque for the pending balance before they release the documents with them. They might ask for insurance on your property before sanctioning the loan.
Taking all these into consideration, it might not be worth the time, energy, and cost to do a Home Loan Balance Transfer. Your current lender might even be willing to negotiate interest rates and other facilities with you once they see that you are serious about the switch.
They might offer lower interest rates or restructure the repayment schedule so that it becomes easier for you. Give these offers serious consideration before you move to another bank.