Until a few years ago, once borrowers had availed of a home loan to buy a home, they had no option of changing the terms and conditions on their loan. This means they had to stick to the loan terms and conditions mentioned in the original offer letter — they had to repay the loan at the rate of interest mentioned in the original loan offer letter and within also the loan tenor mentioned in it and there was no way of changing this. This, however and fortunately, is not the case anymore.
The thing is that life is unpredictable and it does not always pan out as imagined. Most home loan borrowers avail of a home loan after careful planning and take on the responsibility of EMIs they can easily fit into their budget. However, when financial emergencies happen and they do happen to everyone, affording the same EMIs becomes difficult. When this happens, home loan borrowers can get a huge relief from a lower interest rate or longer loan tenor. A home loan balance transfer allows home loan borrowers to benefit from a lower interest rate or a longer loan tenor, in case life does not go as planned.
Home loan balance transfer is a facility offered by most lenders these days. Using this facility, home loan borrowers can transfer their home loan from their current lender to another offering better loan terms and conditions. In most cases, borrowers opt for a when they find that another lender is willing to refinance their loan at a lower rate of interest. By availing of this facility, borrowers can also opt for a longer home loan tenor or a different interest rate regime than they had originally opted for. Let us look at the benefits of a home loan balance transfer and how this facility can help borrowers in the long run.
Benefits of a Home Loan Balance Transfer
1. Lower Rate of Interest
Most home loan borrowers opt for a home loan balance transfer when there is another lender offering them a lower rate of interest. A low rate of interest automatically translates into either lower EMIs or a shorter loan tenor, both of which reduce the cost of borrowing the loan and the total interest outgo. However, borrowers opting for a home loan balance transfer to benefit from a lower rate of interest must keep in mind that a home loan balance transfer proves most useful during the early years of one’s loan tenor when the interest component of the loan is still high. Further, borrowers can build substantial savings from a home loan balance transfer only if the remaining tenor is 15 years and there is at least a 25bps difference in the current and new interest rates or if the remaining tenor is 10 years and there is at least a 50bps difference in the current and new interest rates
2. Change in Loan Tenor
When borrowers opt for a home loan balance transfer, lenders give them the option of changing their loan tenor. Borrowers who are finding it difficult to afford their current EMI, can extend their loan tenor as this will help them make their EMIs more affordable. On the other hand, borrowers who want to become debt-free quickly and can afford high EMIs can choose to opt for a short loan tenor.
3. Change in Interest Rate Regime
Floating interest rate loans are expensive than fixed interest rate loans. Thus, many a times, borrowers choose to go for fixed rate loans even when the loan tenor is long, floating interest rates almost always prove to be more beneficial. If you made the mistake of availing of your loan on fixed interest rates, you can change to floating interest rates using the home loan balance transfer facility. Further, if you think that home loan interest rates will go up in near future, you can also switch from floating to fixed during home loan refinancing.
4. Avail of a Top-Up Loan
Yet another advantage of going for refinancing or a home loan balance transfer is that borrowers can avail of a top-up loan when they opt for a home loan balance transfer. This top-up loan comes with zero end-use restrictions and one can use the money as they please. They can use the money to invest in other avenues for better returns or fund their child’s education or a wedding in the family, take care of medical expenses, etc. The interest rate on these top-up loans is also quite low and therefore, repaying them is easy.
Final Words
A home loan balance transfer offers several benefits. However, the biggest benefit of a home loan balance transfer is that it allows you to save money and that happens when there is a considerable difference in your current rate of interest and the rate of interest that you are being offered. It also happens when one opts for a home loan balance transfer at the right time. Borrowers must keep in mind that home loan balance transfer involves a fee and therefore, one must opt for a home loan balance transfer after performing a proper cost-benefit analysis. We recommend the use of a home loan balance transfer calculator. These calculators are easily available online and are free to use. They also do a wonderful job of telling a borrower whether a home loan balance transfer would be the right choice for them. So, either use this calculator or talk to an expert for going for a home loan balance transfer.
This is a Partnered Post.