A home loan is a long-term financial obligation and continuing to repay it for a higher interest rate is an inconvenient financial situation considering that there are comparatively affordable options available in the market.
On that account, most individuals prefer a home loan balance transfer. In a balance transfer, a new financial institution takes over an existing loan by settling in full with the existing financer, wherein such borrower needs to pay their EMIs to the new financer.
Most individuals consider transferring their home loan to a different financial institution if they come upon a financer who levies a comparatively lower interest rate on home loans than their existing home loan provider. In other cases, individuals can also consider a home loan transfer if they find their existing financers terms and conditions to be inconvenient or unsatisfactory.
Nevertheless, when you consider transferring your home loan balance to a different financial institution, it shall not be solely based on lower interest rates.
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Factors to consider when opting for a home loan balance transfer
As mentioned earlier, a home loan is a long-term financial obligation, and hence, any decision regarding it can also have long-term financial effects. If you do not duly consider the variables attached to a balance transfer facility, it might compromise your financial position in the future. Hence, you should consider –
Time of transfer
One of your primary considerations should be the ideal time for when you should do a balance transfer.
Home loans are repaid in EMIs, which comprises two components – principal and interest.
In the initial years, such interest component in your EMIs is significantly higher than the principal component. It is because financial institutions employ considerable resources, both monetary and human when processing a home loan application. Hence, in the initial years, home loan providers seek to minimise their risks of incurring losses by levying a higher interest component.
However, to maintain transparency, financial institutions provide an amortisation schedule. This schedule contains details of EMIs with the division of principal and interest throughout the tenor.
Hence, before you transfer your home loan to a different financial institution, check the amortisation schedule to view how much principal has been repaid until such date.
Consecutively, check the amortisation schedule with the interest rate levied by the new financer to check your new loan obligation. Also, note that your existing home loan provider will charge a balance transfer fee. If you see that such fee compromises on the gain from your balance transfer, it is not wise to opt for a balance transfer and vice versa.
Regardless, to make an informed decision, it is imperative to learn everything you should know about balance transfer. These include –
Before making a home loan balance transfer, check if your new financer levies any additional charge or hidden charge which can cost you more than what you are bearing with your existing lender.
Consistency of interest rates
You should not base your decision for a home loan transfer on lower interest rates offered by a financial institution. You should also check the consistency of interest rates levied by such financer in the past to determine whether it may change their rates in the future compromising your gain from such transfer.
Credibility of lender
It is also essential to consider the credibility of such financial institution to which you are transferring your home loan. For instance, the Bajaj Housing Finance Limited Home Loan comes with attractive interest rates, flexible repayment tenor options of up to 20 years, and more.
You should consider a balance transfer after duly considering these necessary factors as it might entail long-term financial effects. Additionally, considering these factors will ensure you can financially gain from your home loan balance transfer.