A growing number of consumers are refinancing their mortgages with less expensive lenders. It has been stated that house loan poaching by lenders (i.e., home loan transfers by borrowers) has climbed to 20% of all mortgages sanctioned. Shifting, balance transfer, or simply transfer refers to a loan being taken over by another lender once the former lender is paid off in full and the borrower begins paying the new lender the equivalent monthly installments (EMIs).
Existing home loan borrowers can use the House Loan Balance Transfer option to transfer the outstanding loan amount of their existing home loan to a new lender at a cheaper interest rate and/or for longer terms. This service is especially advantageous for customers who took out house loans at higher interest rates but are now eligible for significantly reduced rates because of a better credit profile. The reduced interest rate offered by the home loan balance transfer service aids these borrowers in lowering their overall interest costs.
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The lenders' appraisal of different features of their customers' credit profiles, including credit scores, age, employer profile, repayment capacity, employment, and so on, would heavily influence the balance transfer rates provided to current home loan borrowers.
The interest rates for balance transfers are normally the same as those on ordinary home loans. There are a few lenders, though, that provide various rates for house loan balance transfers. The table below gives you an indication of the balance transfer charges charged by some of India's biggest banks and HFCs.
Here's a quick rundown of the home loan transfer features given by some of India's most reputable lenders. These lenders have a reputation for offering low loan rates and rapid processing and disbursals in India:
- Aadhar Housing Finance ( Home Loan Transfer )
- Aavas Financiers ( Home Loan Transfer )
- Allahabad Bank ( Home Loan Transfer )
- Andhra Bank ( Home Loan Transfer )
- Bajaj Finserv ( Home Loan Transfer )
- Bank Of India ( Home Loan Transfer )
- Bank Of Maharashtra ( Home Loan Transfer )
- Canara Bank ( Home Loan Transfer )
- Cent Bank ( Home Loan Transfer )
- Cholamandalam MS ( Home Loan Transfer )
- DHFL ( Home Loan Transfer )
- Home First ( Home Loan Transfer )
- Indiabulls ( Home Loan Transfer )
- Indian Bank ( Home Loan Transfer )
- Indian Overseas Bank ( Home Loan Transfer )
Reasons For Switching the Home Loan lenders
Switching to a lender with a cheaper interest rate makes sense, especially if you have a longer repayment period ahead of you since you will save a lot of money on interest. Servicing a debt at a higher interest rate than what competing lenders provide is not a wise financial move, especially if it is a house loan. The amount of money saved will, however, be determined by the amount of money owed, the interest rate differential, the remaining term, and the cost of switching.
Borrowers of house loans must refinance their loans for the following reasons:
- Rates of interest are Lower: Due to their reduced loan eligibility and bad credit profile, many current house loan customers may have gotten home loans at higher interest rates. However, when their credit profiles improve over time, they may be able to qualify for a low-interest house loan.
- Maximum Tenure: Many lenders enable balance transfer clients to choose loan terms that are longer than the original house loan's residual term. Choosing a longer loan term would result in cheaper EMIs, reducing their EMI load. However, choosing this option might result in a higher overall interest expense.
- Top-up loan: Home loan borrowers who want to transfer their balance obtain a top-up loan in addition to the balance transfer. The sum of the top-up loan can be utilized for any professional, personal, or other needs without any end-use restrictions. The top-up loan amount may differ from one lender to the next, based on the balance transfer applicant's overall loan amount eligibility. Existing home loan borrowers who are unable to get top-up loans from their current lenders or who are being charged higher interest rates for doing so might choose to transfer their home loan amount.
- Additional Benefits: Depending on your new lender, you may be able to take advantage of superior loan features including EMI waivers and no processing costs.
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Interest Rate Regime
After April 1, 2016, all bank loans, including house loans, are now tied to the bank's marginal cost of funds-based lending rate (MCLR). They were previously tied to the bank's base rate. In addition to banks, non-banking finance institutions (NBFCs) or housing finance businesses may be used to get house loans (HFCs). Both, on the other hand, lack the idea of MCLR and hence have the freedom to determine their rates depending on competition and the cost of funding.
Following the RBI's rise in the repo rate in June 2018, and with banks' cost of capital increases, most banks' MCLR is increasing. MCLRs have previously been raised by Andhra Bank, Bank of Baroda, and Syndicate Bank, among others. With effect from June 1, 2018, the country's largest bank, State Bank of India (SBI), increased its MCLR by 0.10 percent across all tenures.
The Repo Rate Lending Rate (RLLR) loan is linked to the repo rate of the Reserve Bank of India. This is the rate at which banks borrow money from the Reserve Bank of India. Banks that offer RLLR-based loans drop their interest rates when the RBI lowers the repo rate. The bank's Home Loan interest rate will fluctuate in response to changes in the repo rate.
If the RBI raises or lowers the rate, the RLLR Home Loan guarantees that borrowers are informed. The reduction in the repo rate will benefit homeowners by lowering the interest rate on their house loans. As a result, your EMI load will be reduced.
A balance transfer is when you move your home loan from one bank to another to get a lower interest rate and other perks. Borrowers are frequently faced with high-interest rates as a result of increased expenditures and inflation.
High-interest rates can have a significant influence on your finances, especially if you hold a loan. Let's look at how a Home Loan Balance Transfer works and what things you should think about before making the decision. When it comes to purchasing a home loan, we always want to get the best deal possible to save money. If you have a Home Loan and your bank is charging you a high-interest rate, you can avoid the situation by transferring your amount.
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You must examine the following 5 things before transferring your balance:
- Negotiate a reduced interest rate: Before transferring your home loan amount, talk to your current lender about a low-interest rate. If you have a long-standing relationship with your bank, it may accept your request based on your credit history and ability to repay the loan.
- Examine your credit score: Your credit score will tell you whether or not you're qualified for a debt transfer. If you have a history of not repaying credit on time, it will affect your credit rating. If you have a bad credit score, you will be less qualified for a loan transfer since the new bank will consider your credit score along with other considerations.
- Processing costs: application fees, administrative fees, and inspection fees are all part of the balance transfer procedure. Both your current and new lenders will levy fees. Determine whether the cost of a balance transfer is less than the amount you owe in interest.
- Advice: Experts advise against taking for a balance transfer loan if you're reaching the conclusion of your loan term or plan to sell your house shortly.
- Terms & Conditions: Before transferring, read the following terms and conditions. When you've decided on a lender for a balance transfer, examine the terms and conditions thoroughly to avoid any surprises. Make sure you understand the loan incentives offered by the new bank.
After switching to the MCLR method, there is always the possibility of interest rates rising before the resetting period. If the Reserve Bank of India (RBI) rises repo rates, the MCLR will rise as well, as is the case now. Setting the MCLR re-set date to quarterly or half-yearly in a declining interest-rate environment may be a preferable alternative, assuming the bank agrees. The borrower, on the other hand, will be at a disadvantage when the interest rate cycle changes.
Along with picking the lowest home loan interest rate and keeping an eye on the reset period, be sure the agreement provides for no penalties for prepayment, foreclosure, or moving to another lender. Also, consider the amount of the loan sanctioned (in comparison to another lender), the paperwork requirements, and the projected period for actual payout.
