What is a Home Loan Balance Transfer & How to Transfer a Home Loan?

Almost everyone has bought their home with the help of a home loan, now, these loans take almost 10-20 years, or even more to clear. But, did you know that you don’t have to stick to the initial bank or lender? You can get your home loan balance transferred or switch to a new bank/lender.

How Does Transferring a Home Loan Work? 

Transferring your loan is when you find another bank or lender who will pay your old lender in full. The new lender will then start charging you as per the new loan amount, and you will have to pay the new EMI (equated monthly instillments) amount to them. You will need to pay a conversion fee to the existing lender to be able to do this.

Home Loan Transfer Process

You can refinance your mortgage by taking the steps listed below:

1. Visit the website of the relevant bank.
2. Review all of the conditions, including the interest rate and processing charge.
3. Submit a balance transfer application if you are happy with the plan.
4. You must complete the necessary fields, which include your name, the type of property, the duration of the current loan, and the name of the bank, among others.
5. After completing Step 5, you can view your loan offer.
6. Complete the required payments and upload your paperwork.
7. Finish the application process and wait for approval.

Once this is done, you would have to take the following steps-

• Obtain from your current lender all the paperwork required to transfer the rest of your mortgage.
• Obtain a letter of approval from the current bank and the outstanding loan balance.
• Give these records to the new bank to which you want to transfer the rest of your mortgage.
• The debt owed to your former lender will subsequently be settled by the new lender.
• Your old loan account will then be terminated, requiring all future loan payments to be made to the new bank.
• The transfer of your home loan will then be fully completed when all property paperwork is delivered to the new bank.

Home Loan Balance Transfer: Required Documents

Documents required for home loan transfer include-

• Identity proof
• Address proof
• Passport size photograph
• Documents pertaining to the existing loan
• Last 3 month’s salary slips
• Last 3 years’ balance sheet and profit and loss account statements (Self-Employed)
• Last 6 months’ bank statements

Home Loan Balance Transfer: How to Calculate EMI? 

The following elements will affect how much money you can save:

• Principal balance of your unpaid mortgage
• Present EMI paid monthly
• The ongoing loan's term at the moment (in months)
• The new lender's interest rate, to which the loan will be moved
• Required term of the new balance transfer mortgage in months

For instance, if the principal balance is Rs. 40,00,000, the current EMI is Rs. 40,000, the current loan's term is 240 months (20 years), the interest rate for a balance transfer loan offered by the new lender is 8.85%, and the required term for the new loan is 240 months (20 years), you will save Rs. 10,55,040. Your EMI will drop from Rs. 40,000 to Rs. 35,604 per month.

The whole payment will drop from Rs. 96,00,000 to Rs. 85,44,960. Even though you won't necessarily save much money by choosing a shorter term, you will be able to pay off the loan more quickly while maintaining the same monthly payment schedule.

Why do People Transfer their Home Loans?

Most often people decide to go for a home loan transfer because the new lender is offering them a better deal, this could be

Lower Interest Rates 

There are times when after you take your home loan, the lending rates could fall in the economy, but you still have to pay the high-interest rate that you signed up for. Your current lender won’t be able to change your interest rate, and you will have to pay more interest even though the rates have come down. In this case, switching would mean paying a lower interest rate and hence being able to save more in the long run.

To be Able to Change the Tenure of Your Loan 

Once you agree to the tenure of your home loan, you will not be able to change it, the only way to do so is to transfer your home loan or as it’s called refinance your mortgage. When you transfer your loan, you can choose to increase or decrease the tenure. If you are doing better financially, you can decrease the loan period, or if you want a little more disposable income, then you can increase the loan period.

To get Better Deals or Service 

Some home loan providers charge high penalties and foreclosure fees. The best way around this is to go to a provider that offers lower penalties and nil foreclosure fees. This way, you can close your loan earlier without having to worry about fines. If you feel that your loan provider is terrible at customer service, this too could be a valid reason to transfer your home loan to another loan provider.

To be Able to Shift from Fixed to Floating Interest 

A fixed rate of interest on a loan means that the EMIs you have to pay will remain the same over the tenure of the loan. Floating interest rates mean that the EMIs would fluctuate as per the market rates. This way, you could end up paying more, or less than the current EMI. If you are paying a high EMI and see that a floating interest rate will help you save more, then it is a good idea to make the change.

To be able to Get Additional Funds 

If you have taken a home loan for 20 lakhs, but later come to know that you need an additional 5 -6 lakhs for interiors and other miscellaneous expenses, what do you do? In this case, a home loan transfer can really help. You can ask the new lender for the amount you want in addition to the loan you will be transferring.

To Lower your EMI Amount 

If you suddenly feel that your expenses are too high, and you need to get a little more money to spend, then you can look at ways to lower your EMI amount. This can be done by transferring your loan for a lower interest rate or transferring for a longer tenure. Both these methods will help you reduce your EMI amount.

Home Loan Transfer Charges

A house loan transfer involves several additional charges in addition to the interest rate. Before transferring their house loan balance, the following are two crucial fees that borrowers must consider:

Charges for foreclosure: These fees are paid to the current lender to close the loan before the term has run its course. On house loans with adjustable rates, these fees are nonexistent. These fees, however, might reach 4% of the outstanding debt for house loans with fixed interest rates. 

Processing fees: These costs, which can be up to 6% of the loan amount, must be paid to the new lender in order for them to process your application for a new home loan after the transfer.

If you feel that you too need to get a balance transfer, to reduce EMI, or reduce tenure or for any of the above reasons, then let us help. NoBroker can provide you with plenty of loan options to choose from, as well as a dedicated Loan Manager who will help you through the process. Visit us by clicking below to know more about this service.