According to the reports from TransUnion CIBIL, the housing loan delinquency rate has surged by 13 basis points on a year-on-year basis in the quarter ended in September 2020. As a result –
- The NPA rate in India is likely to hit 13.5% by the end of September 2021 and may further escalate to 14.8% in the third quarter of FY 2021-22.
To curb this issue, RBI has kept the repo rate unchanged at 4%, resulting in lower home loan interest rates. Prospective homebuyers can take advantage of this scenario and use the home loan balance transfer facility to opt for a loan with more favorable repayment terms.
Home loan balance transfer – A brief idea
Housing loan balance transfer is the process of shifting credit from one lender to another. Here, borrowers foreclose their existing loan and apply for a fresh one with a separate lender.
The primary objective of this facility is to help debtors reduce the overall interest cost of their home loan. This facility is particularly helpful for individuals who have taken housing loans at comparatively higher interest rates and willing to shift to a more competitive one in the current scenario.
One can take assistance from a home loan balance transfer calculator to determine the difference and apply accordingly. Here is an example for a better understanding of this concept –
You have taken a home loan of Rs.30 lakh at a 9.5% interest rate for 20 years. The resultant EMI stands at around Rs.28,000. After repaying the loan for a period, you have Rs.25 lakh left to repay with a tenor of 15 years.
Now, if you opt for a balance transfer at 8% for the remaining period, the home loan EMI becomes around Rs.24,000. You can further reduce the EMI by opting for an extended repayment tenor.
Therefore, applying for a loan transfer can help individuals to save substantially on their interest outgo. Nevertheless, one needs to meet the required home loan eligibility criteria for a balance transfer to avail of this facility.
Process of home loan balance transfer
Here is a step-by-step guide to applying for a balance transfer –
- At first, borrowers need to submit a balance transfer request with their existing lender
- After that, they need to gather a NOC, a letter of consent, property documents, and a loan repayment statement from their existing financial institution
- After that, they need to apply with the new lender via their website
- Following initial approval, debtors need to submit the required documents
- After a final verification, the new lender will foreclose the existing debt, and debtors will start paying to their new financer
Furthermore, to complete this process successfully, one needs to meet the eligibility criteria and submit the needed documents. Also, borrowers should keep in mind some tips for refinancing home loans before applying for one.
Eligibility criteria of a home loan transfer
The required eligibility criteria here includes the following –
- Applicants must be above 21 years.
- They must maintain a healthy CIBIL score for a home loan.
- They must have paid at least 6-12 EMIs with the current lender, depending on a financial institution.
- There should not be any default in a borrower’s EMI payment history.
- Must comply with the monthly income requirements of the lender
Apart from these, lenders may ask for additional requirements like work experience, condition of a property etc., which borrowers need to fulfil. Alongside, they need to submit the required documents to complete this process.
Must Read: Easy Tips to reduce your home loan interest rate
Documents required for a balance transfer
- KYC documents.
- Address proof.
- Current loan documents.
- Property papers.
- Income proof (salary slip, income tax return documents).
- Bank account statement.
- Business papers for self-employed individuals.
The benefits of a home loan balance transfer are widely regarded, but one needs to time it perfectly to reap its benefits.
When to opt for a balance transfer?
In the current market scenario where RBI has slashed the repo rate, and home loan interest rates are largely around 7%, it is the ideal time for a loan balance transfer. Borrowers can refer to the loan amortisation sheet to understand the EMI break-up and time the loan balance transfer perfectly.
Reputed financial institutions do not levy any additional charges for this facility. Additionally, the availability of pre-approved offers enhances the comfort of debtors, as it reduces the loan application time significantly. It is applicable to financial products like home loan, loan against property, etc. Additionally, borrowers can check their pre-approved offer by providing their contact details.
Home loan balance transfer facility helps borrowers to save substantially on their loan repayments. The benefits of a home loan balance transfer further increase the convenience of home buyers and lower the chances of loan default.