A home loan is a convenient credit form for applicants planning to purchase a residence. However, this obligates a borrower into a long-term repayment structure. With home loan interest rates at an all-time low, this is the most opportune time to avail housing loans without overburdening one’s finances.
Moreover, the existing borrowers paying a high-interest rate can reduce their monthly outgo by opting for a home loan balance transfer. In this regard, understanding the complete process becomes crucial.
What is Home Loan Refinancing?
A home loan balance transfer is a way of shifting the outstanding home loan balance to a favorable financial institution offering lower interest rates.
Individuals availing a home loan to purchase a house can reduce the financial outgo with this option. They get the option to switch from fixed to the floating interest rate at a certain cost. This facility can help individuals want a reduced home loan tenure, favorable terms, and borrow more capital.
Again several HFCs offer a top-up loan with a nominal home loan interest rate. They also offer a pre-approved loan offer that makes the credit approval hassle-free and swift. Such offers are also available on loans such as home loans, loans against property, etc.
Five factors to check before refinancing
Before opting for this home loan balance transfer, a person must know to assess his/her repayment capability.
Here are some of the vital pointers to mark-
1) Home loan interest rate-
A housing loan borrower must practice comparing different lenders to find the competitive interest rate. They can start by negotiating with the existing lender to reduce the levied interest rate. Typically, lenders agree with the terms to avoid the risk of losing a customer. This is a smart way of lowering the home loan EMI outgo. In this regard, maintaining a praiseworthy credit score builds the trust of lenders. One can also receive benefits from refinancing like reduced EMI without pre-payment or foreclosure charges.
2) Credit history and rating
A person’s credit score ascertains his/her eligibility to opt for a home loan balance transfer. If a borrower is incoherent in paying timely EMI, it logically degrades the CIBIL score. Hence, one must clear any outstanding dues like paying credit card bills or existing loans to proceed with balance transfer easily.
3) Charges levied on balance transfer
It is the responsibility of the home loan borrower to know about the charges levied on balance transfer. Typically, processing fees like inspection, application fees, administration charges and more are added. However, these costs can be pretty expensive. It is, therefore, crucial to calculate the cost of transfer and EMI rate to make an informed decision. One can also take help from the home loan balance transfer calculator offered by lending institutions to find results in no time.
4) Suitable time for loan transfer
A loan transfer is only beneficial when initiated at the correct time during repayment tenor. For instance, the interest component in housing loan EMIs is highest during the initial repayment period. Refinancing is highly beneficial at such times. However, transferring a home loan with only a year or two remaining can defeat its purpose.
5) MCLR rate
The interest rate per RBI guideline is used to determine the Marginal Cost of the fund-based lending rate. Therefore it is essential to understand the MCLR Rate calculation to negotiate with lenders regarding the suitable EMI.
Apart from considering these five factors, a person should know the factors linked. Typically, a borrower can receive a home loan tax benefit on the interest paid and outstanding balance under Section 24(b) and 80C. These factors facilitate lucrative savings.
Understanding the process and charges will help make the best out of the home loan balance transfer facility. Moreover, an individual can lead to cost-effective savings.
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