Everything to know about Early Home Loan Transfer

Early home loan transfer is the process of transferring your home loan from one lender to another. Even when you get a home loan from a particular financier, you can transfer the home loan to another home loan provider. There are plenty of reasons why one can do this. Your current home loan plan may be proving to be too expensive with high interest rates. If another lender is providing a home loan with lower interest rates, then you can decrease your interest outgo by opting to transfer your home loan.But a home loan transfer cannot just be done without due diligence. You must consider all factors when doing so, the most important of which are the charges levied by the current lender for home loan transfer. If your overall expense for the home loan is still better with a new lender after paying home loan transfer penalties, only then it may be a good idea to transfer your loan.

Home loan transfer penalties are certain charges levied by your current lender when you transfer your home loan to another lender. These chargers include administration charges, processing fees, application fees, inspection fees, prepayment charges etc. When you consider all these charges, the total penalties can run as high as around 1%-3% of the total loan amount, which is quite a significant expense.Hence, you must first calculate whether your home loan transfer will be worth it after paying these charges. If the home loan cost with a new lender is not significantly low, you may end up paying the same cost for your loan when you include penalties.

Lenders levy home loan transfer charges because a home loan is a long term prospect and the lender earns interest on it. That is why they want to ensure that borrowers continue their loans with them for the entirety of the tenure. They mainly levy charges to discourage borrowers from transferring their loans.Deciding if the charges are worth transferring your loan
The most important factor when deciding to transfer your loan is the total expense that you’re going to incur. Just because a different lender is offering lower interest rates doesn’t mean you can simply transfer the loan. Your current lender will levy transfer charges and you must also include these in your calculations. You can use a home loan transfer calculator to find out how much you’ll end up paying for a transfer.Let us suppose that your outstanding loan amount with interest of let’s say 10% with your current lender is Rs. 50 lakh and you have a tenure of 10 years remaining. Now if you see another lender who’s willing to offer a lower interest rate, and your outstanding amount will be lesser at Rs. 45 lakh, for example, then you will feel that it is a lucrative deal where you’re saving Rs. 5 lakh. But when you include the home loan transfer charges, chances are that you may only end up saving a fraction of that amount. In that case, a transfer does not seem like a good idea.Given below are a few instances where you can think of transferring your home loan.

• New lender is providing lower interest rates
• Transfer charges that your current lender is levying are within your budget and you will still end up saving interest outgo after transfer.
• Outstanding loan amount is still high, since if you transfer a loan when your outstanding balance is not significant, you will not be saving much on interest.

Whether a home loan transfer is a good idea depends on two main factors, the interest rate that the new lender is offering and the transfer charges that your current lender will levy. The benefit of just one may not be sufficient. You need both of these factors to work in your favour. If all your calculations say that you will end up saving on the cost of your loan after a home loan transfer and even after paying transfer charges, then you can go ahead and do so. This will only reduce your burden as your EMIs will be lower due to the lower interest rate.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.