What Are the Benefits of Home Loan Balance Transfer?

What is Home Loan Balance Transfer?

Home Loan Balance Transfer, also known as HLBT, is shifting your outstanding Home Loan to a different lender for a better rate of interest and/or other benefits. Technically, when you transfer your Home Loan to another lender, the new lender pays off the unpaid loan balance to your existing lender, and your existing Home Loan account gets closed. Simultaneously, your new Home Loan account starts with your new lender, where you pay a comparatively lower rate of interest.

Nowadays, many banks and Housing Finance Companies offer the facility of Home Loan Balance Transfer with several offers and benefits. More and more lenders are interested in offering pre-approved Home Loan Balance Transfer to consumers with excellent credit scores. Although all these promotions and offers are targeted to turn the borrower towards them instantly, the borrower needs to check whether it is a win-win situation for both parties and ensure the terms are stable.

What are the benefits of a Home Loan Balance Transfer?

1. Lower Interest Rate:

The lower rate of interest is the biggest benefit of opting for a Home Loan Balance Transfer. If another bank or housing finance company offers a lower interest rate than your existing lender, it should definitely be considered. Even a tiny difference of 0.5% p.a. in interest rate makes a difference in the overall amount you pay. Moreover, it helps to bring down the monthly burden of EMIs.

Suppose you have an outstanding Home Loan of Rs 60 Lakhs with ABC Bank. The rate of interest is 9.75% p.a., and the remaining term is 20 years.

Case 1: If you decide to continue with the existing lender, your expenses will be:

Case 2: If you opt for a Home Loan Balance Transfer with XYZ Bank, which is offering a 1.50% lower interest rate than your existing lender, i.e. 8.25%, your expenses will be:

Thus, reducing the rate of interest by just 1.50% can save Rs 13,88,898.

Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds

2. Extended Loan Tenure:

If the current EMIs are unaffordable to you, a Home Loan Balance Transfer can offer you a longer loan tenure by reducing the EMI. Suppose your remaining Home Loan tenure is 10 years but due to some reason you cannot afford the EMI and want to reduce it. Then you can opt for an HLBT and the new lender can offer you an extended loan tenure and you can comfortably repay the loan amount.

3. Option to Get a Top-up Home Loan:

Another significant benefit of Home Loan Balance Transfer is that while transferring the loan, the borrower can get an additional amount with their existing loan. This additional amount is called a Top-up Home Loan facility. A Top-up Home Loan is generally limited to 25% of the outstanding amount that you are transferring. It can be availed at a lower rate of interest and used for any personal purpose, such as home renovation, child's education, etc.

For example, Ms Sudha wants to make a Home Loan Balance Transfer of Rs 20 Lakhs. And, she also needs Rs 4 Lakhs to buy new furniture at home. With a top-up facility that comes with Home Loan Balance Transfer, it is easy for her to avail of the extra loan at a lower interest rate. But, without a top-up facility, Ms Sudha might have to avail of a Personal Loan that has a significantly higher rate of interest.

4. Better Loan Terms:

All the Home Loans offered by banks and Housing Finance Companies will have their unique features. If you are not satisfied or require some specific features that your existing lender does not offer, you can consider shifting your loan to another lender. However, while transferring your outstanding loan, make sure the lender offers the features you require as well as it is financially beneficial to you.

For example, if your existing lender has higher charges for pre-payment and foreclosure of a Home Loan, you can consider Home Loan Balance Transfer to the lender who does not charge or has minimum charges for pre-payment and foreclosure along with a lower interest rate.

5. Option to Change the Type of Interest Rate:

A Home Loan can be availed at a fixed or floating interest rate. A fixed interest rate remains constant throughout the loan tenure. Whereas a floating interest rate changes with the change in Repo Rate. A Home Loan Balance Transfer lets the borrower change the type of interest rate he/she is paying.

If you are paying a fixed interest rate on your Home Loan and the possibility of Home Loan interest rates decreasing is more, it is advisable to switch to a floating interest rate. On the contrary, if you are paying a floating interest rate and the possibility of interest rates increasing continuously is more, it is advisable to switch to a fixed interest rate. While switching from a fixed interest rate to a floating interest rate and vice versa, a balance transfer should be considered to get the benefit of a lower rate of interest.

6. Better Service:

Since the duration of a Home Loan is usually longer, most people prefer good customer service. There can be many issues you might face after availing of a loan, such as no prompt service at a service desk, not updating personal details even after a long follow-up, frequent changes in the terms and conditions, etc. So, if you are not satisfied with the services of your existing lender, you can switch to another lender with whom your requirements match. However, while shifting to a different lender, make sure you check all the other factors as well.

To Conclude:

Home Loan Balance Transfer is the best way to get the benefit of a lower rate of interest and other benefits stated above. While you may avail of a Balance Transfer for any reason, it is advisable to check the terms and conditions of the new lender and compare the financial benefits before applying for it. It makes sense to opt for an HLBT when you still have a longer period left on your existing loan as it will ensure the savings you make by transferring the loan are considerably higher than the cost of transferring the loan. Therefore, it is advisable to do a cost-benefit analysis before doing an HLBT. You need to make an informed decision because, just like a Home Loan, a Home Loan Balance Transfer is also a long-term commitment.

Warm Regards,
Ketki Jadhav
Content Writer