A balance transfer helps individuals with a home loan burden get better opportunities from the lending market. They can get their loan account transferred to different lending agencies for better offers like lower interest rates, stretched loan tenor, top-up loans, etc. This way, they can reduce their interest outgo or get more time to repay the credit.
However, individuals who want this transfer of outstanding loan amount should know the ways this phenomenon works.
How balance transfer works
The process of transferring the remaining home loan amount from one to another lender consists of different steps. Here is all about these integral steps:
Step 1: In this first step, individuals need to inform their existing lenders that they want to transfer their loan amount to different lending agencies. For this, they must apply for the same with a written application.
Step 2: After verifying the application letter, the current lending institution issues a no-objection certificate (NOC), consent letter, letter of foreclosure, List of Documents (LOD). Further, it also provides borrowers with a loan statement reflecting monthly repayment history.
Step 3: At this stage, individuals need to apply for their home loan balance transfer to a new lending agency that they have selected. They also need to submit several important documents for home loan balance transfer while applying. Borrowers should keep these papers handy while opting for this loan transfer.
Step 4: The new lender goes through the documents. Upon verification, they issue a sanction letter and loan agreement paper. Borrowers need to sign on those papers after reading them carefully.
Step 5: New lending institution transfers the entire outstanding loan amount of the individual from the previous lender. Thereafter, the previous lender cancels all the dues and closes the individuals’ home loan account.
After all these home loan balance transfer process, the new lending institution creates a fresh loan account in the borrower’s name.
Thus, the process is simple, and the hassle is almost nothing compared to the benefits one can get. However, there are several things you need to know about home loan balance transfer. These will make your financial decisions secure and beneficial in the long term.
Suitable time for a balance transfer
Individuals should aim to reduce their interest outgo while opting for a home loan balance transfer. Here is a list of factors that will guide borrowers to know the best time to transfer credit advance:
- Decreased base benchmark rate: They should look for this transfer when the base rate of the lending agency is lower. This is because the effective rate of interest on the home loan becomes lower during this time.
- Higher outstanding amount: It is wise to choose this balance transfer when the existing loan amount is higher. If the outstanding amount is low, a reduced interest rate will be effective on a smaller portion only.
- The first half of the loan tenor: Balance transfer becomes more profitable in the 1st half of the tenor. This is because interest outgo is higher than the principal amount on the EMIs during this 1st half. After paying most of the interest, individuals will not gain much profit by transferring the outstanding loan.
Individuals should know that several lending institutions grant pre-approved offers on products like housing loan and loans against property. It is a hassle-free way to quicken the loan application process. Borrowers can quickly check their pre-approved offers by submitting their names and contact details.
Thus, individuals can easily request a balance transfer to maximise their housing loan benefits. However, they need to carefully choose their new lending institution by examining interest rates and other advantages they provide. It will reduce their burden of loan interest and broaden their financial opportunities.