Process of Home Loan Balance Transfer - Tips & Calculation

Most customers opt for a home loan balance transfer if there is a disparity between the interest rates for existing and new customers.

1. Request your current lender to provide the documents needed for refinancing the loan
2. After the lender provides a consenting letter with outstanding loan amount, these documents will have to be provided to the new lender who wishes to refinance the loan. It is important to note that the bank you are shifting to will offer you a loan, based on the current home loan rates they are offering to their applicants
3. The new lender will transfer the pending amount to the old lender.
4. The old lender will now handover all important documents – property papers & the remaining postdated cheques and ECS will be cancelled; officially completing the refinancing procedures

Before commencing the process, it is important to do a cost-benefit analysis, to see whether the transfer would be benefiting. Couple of points on should look at:

• If the interest is on fixed rate, then a pre-payment penalty needs to be paid to transfer the loan, in such a situation it is not advisable to do the same. In case, the interest is on floating rate – then transferring loan to a new bank offering better interest is viable
• One should keep in mind, that the new bank would also charge a processing fee. This may vary from 0.25% – 1%
• Look out for other hidden charges in the process, for example some banks do not include documentation charges in the processing fee. Also, when a new mortgage deal is prepared, a Stamp duty has to be paid on that (which is not included in the processing fee)

Try to understand this situation with an example,If Shyam, has a Rs. 40,00,000 outstanding loan, and is going from a 10% interest to 9%, his annual benefit is approximately Rs. 40,000.While this is a huge gain, it is worth noting that there are other miscellaneous costs, which also need to be taken into consideration, including the processing fee of the new bank. Assuming, the processing fee @0.50%, his outgo is Rs. 20,000.In such a situation, he is still saving on Rs. 20,000 and hence, the process of home loan transfer can be pursued.Decision for a home loan balance transfer should be looked at carefully, taking into consideration all forms of costs involved, and even the stage of tenure you are in.

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.