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Tata Capital > Blog > Loan for Home > Process of balance transfer explained 

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Process of balance transfer explained 

Process of balance transfer explained 

In today’s economic environment, commercial banks and renowned NBFCs such as Tata Capital offer lucrative home loan options. Therefore, many times, there arises a need for applicants to avail the ‘Home Loan Balance Transfer’ facility (also known as refinancing and home loan take over). This service facility allows the transfer of the unpaid principal amount on a home loan from the current lending institution to another loan financing institution.

The reasons to opt for a ‘Home Loan Balance Transfer’ for you can include lower home loan interest rates, lower Equated Monthly Installments (EMIs), flexible loan repayment plan, better customer services, and much more. Tata Capital is one of the most popular options to choose for a Home Loan Balance Transfer facility.

Understanding home loan balance transfer

Suppose you’re paying home loan EMIs at an interest rate of 9.5% per annum, and you see that another lender is offering home loans at an interest rate of 7.5% per annum. Now, is there a way you can shift your home loan to the lender that offers a lower interest rate?

Yes! You can opt for refinancing with the home loan balance transfer facility.  

A housing loan balance transfer allows you to move the outstanding loan amount from your current lender to a new one. It helps you secure better loan terms, with a lower interest rate and a longer repayment tenure. 

Current home loan transfer interest rates

The home loan transfer interest rates in India range between 7.5% per annum and 9% per annum, depending on the lender and borrower profile. You must check with the lender to understand not only the interest rates, but also other home loan balance transfer charges. Some lenders may charge additional fees for legal, administrative, and verification services, in addition to the loan processing fee. 

Public and private banks, as well as NBFCs, offer competitive rates linked to the RBI repo rate. The final rate is determined by factors like income stability, credit score, loan amount, and remaining tenure. Tata Capital offers the best balance transfer rates, making home loan refinancing affordable for you. The current home loan BT rates start from 7.75% per annum for salaried individuals and 8.35% per annum for self-employed individuals.  


Also,Read-  What is Repo Rate and Reverse Repo Rate? 

When to consider a home loan balance transfer?

Initiating the process of balance transfer of a home loan is advisable in specific situations for maximum benefits. These include:

  1. When the interest rate is lower

The ideal situation for a home loan balance transfer is when the other lender offers an interest rate lower than your present lender. Switching helps you avail lower EMIs and better repayment terms, significantly lowering your overall interest burden.

  1. When your credit score has improved

A higher credit score makes you eligible for a lower interest rate. So, if your credit score has improved after you secured the loan, you can either negotiate the rate with your existing lender or decide on a home loan transfer. 

  1. When you still have a long repayment tenure

It is advisable to transfer your home loan early in your tenure. For instance, if you’ve taken a 10-year loan and only 5 years remain, a balance transfer isn’t recommended. You’ve paid most of the interest in the initial years, and now your EMIs will comprise more of the principal amount. 

Also,Read-  Home Loan from Bank vs NBFC: Which is better?

Common mistakes to avoid in the home loan balance transfer process

While a loan transfer can lead to significant savings, there are certain home loan balance transfer mistakes that you should avoid:

  1. Ignoring the eligibility criteria

The eligibility criteria for home loan balance transfer vary for different lenders. Make sure you consider factors like income level, credit score, and hidden fees before applying. 

  1. Not paying attention to the terms and conditions

Most borrowers are attracted to the lower interest rates for a balance transfer. However, don’t forget to check the processing fees, documentation charges, penalties, or any other hidden fees. These can increase the loan’s total cost. 

  1. Forgetting to consider the processing time

The process of balance transfer of a home loan involves an approval step after the evaluation of your documents. To ensure there are no delays and you’re not paying an additional interest to the existing lender, keep your documents ready beforehand. 

The process of home loan balance transfer

  • Checking the eligibility criteria

At the initial stages, it is important for the applicant to check the home loan eligibility criteria to avail a Home Loan Balance Transfer option. These criteria vary across different commercial banks and financial institutions. The considered factors include a minimum number of EMIs undertaken with the previous lender, the credit score rating of the applicant, a minimum principal amount, loan tenure, minimum gross family income, and a few more. Most institutions resort to a ‘Home Loan Eligibility Calculator’ to determine whether the basic criteria are met or not.

  • Evaluation of whether a home loan balance transfer will be beneficial or not

Firstly, it is important for you to evaluate the difference between the current home loan interest rate and the new rate offered. Thereafter, other factors such as EMI plans, loan tenure, processing fees/other charges, and customer services need to be checked upon as well.

If the balance principal amount with the current lender is low, it is advisable not to proceed with the balance transfer option. In such circumstances, it is more convenient to notify your current lender about the proposals being offered by the new lending institution. This might make them re-evaluate your application so as to provide you with better options. It is also important to read the fine print of the agreement from both the lenders (current and new) so as to reach to a conclusive decision.

You can use a Home Loan Balance Transfer Calculator to calculate the savings incurred on availing the balance transfer facility. The basic details, such as outstanding loan amount, tenure, and new home loan interest rate, need to be entered.

  • Detailed discussions with the new lender

It is advisable for you to understand the practical execution of the balance transfer option. Therefore, discuss the details with the new lender. All queries pertaining to prepayment penalty (if any), time taken for balance transfer, incurred transaction costs (stamp duty, documentation fees, processing charges, conversion fees, prepayment charges) need to be discussed. A few more queries include an understanding of the customer services of the new lender, as well as the type of applicable interest rate (fixed or floating).

Also,Read-   Important Tips for Lowering Home Loan Interest Rates

Documentation required for processing

After evaluation of potential benefits and eligibility criteria, the required documentation process should to be followed. The primary documents include the applicant’s photographs, ID proof, address proof, recent bank statements depicting EMI payments, income proof of the applicant, property documents, as well as details of the loan outstanding amount.

  • Availing the letter of consent from the current lender

Following this, the current lender shall provide a letter of consent with details of the outstanding amount, which needs to be submitted to the new lender.

  • Transfer of the outstanding amount to the new lender

On receipt of the letter of consent, the previous/current lender shall transfer the outstanding loan amount to the new lender.

  • Closure of the old loan account

Once the outstanding amount is cleared, it leads to the closure of the old loan account. Thereafter, all future payments are made by the new lender. All property documents are handed over by the old lender to the new lender. This officially declares the completion of the balance transfer process.

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FAQs

What is the process of balance transfer of a home loan?

A home loan balance transfer involves shifting your loan to a new lender that offers lower interest rates. This process helps you save on interest payments and makes your loan more affordable.

What are the typical home loan balance transfer charges?

Balance transfer charges include a processing fee charged by the new lender, ranging from 0.25% to 1% of the loan amount plus GST. Some lenders may waive this fee during special offers. In certain cases, you may also need to pay legal, valuation, or administrative charges.

How do home loan transfer interest rates vary among lenders?

Home loan transfer interest rates are dependent on the lender’s cost of funds, the borrower’s credit score, reliance on repo rate, income profile, and loan amount. The transfer rates are often lower for public sector banks. NBFCs may offer slightly higher interest rates, but their terms are flexible. 

Can I get a top-up loan along with a home loan balance transfer?

Yes, many lenders offer a top-up loan with a balance transfer, depending on your specific eligibility. The top-up amount is based on property value, existing loan balance, repayment history, and income. The interest rates for top-up loans are usually slightly higher than home loans.

What documents are required for a home loan balance transfer?

The common documents you need for a home loan balance transfer include identity and address proof, income documents, the latest home loan statement, the sanction letter, repayment track record, property documents, and a no-objection certificate from the existing lender. Some lenders may ask for additional documents. Thus, you must find out beforehand. 

Does a balance transfer affect my credit score?

A balance transfer may cause a minor, temporary dip in your credit score due to a fresh loan enquiry. However, timely repayments with the new lender can improve your credit score over time, especially if the transfer reduces your EMI burden.

When is the best time to transfer a home loan?

The best time to transfer a home loan is during the early years of your loan tenure, when interest outgo is the highest. If you transfer when interest rates drop significantly or when your credit profile improves, it can help maximize interest savings over the remaining tenure.

Is there any penalty for a balance transfer?

Most lenders do not charge pre-payment or foreclosure penalties on floating-rate home loans for individual borrowers. However, fixed-rate loans may attract foreclosure charges. It’s important to check your existing loan agreement before requesting a balance transfer.

How much can I save by transferring my home loan?

The savings from a home loan balance transfer aren’t fixed. They depend on the difference in interest rate, outstanding loan amount, and remaining tenure. A drop of 0.5% to 1% in the interest rate can help you save several lakhs over the loan term, considering the processing and transfer-related charges are minimal. 

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