Home Loan

With interest rates fluctuating wildly these days, increasing numbers of Indian homebuyers are being saddled with hefty Equated Monthly Instalments (EMIs) on their home loan. With increasing inflation, stricter credit conditions, and shifting economic patterns, household expenses are now harder to manage than ever before. But few borrowers might not know that there is a viable alternative — Home Loan Balance Transfer. Identifying the problem: The high EMI situation In the last couple of years, the Reserve Bank of India (RBI) has raised repo rates in response to inflationary pressures. As a result, banks and Non-Banking Financial Companies (NBFCs) have passed on the increased cost of lending to borrowers through higher lending rates and higher EMIs (Equated Monthly Installments), which impact both new and existing loans. For example, a typical home loan borrower taking a loan in 2021 at 6.5–7% interest would typically be paying 9% interest or more. If we use a ₹50 lakh home loan with a 20-year tenure as an example, just raising the interest rate for the home loan from 7% to 9% equates to additional EMI burden greater than ₹6,000 per month, or nearly ₹15 lakh of extra cost over the loan tenure. The increase in EMI burden has left many home owners feeling financially constrained. Younger borrowers, as well as middle-income households, who may have other obligations to juggle, may be having a more significant financial challenge as the overall cost of living continues to increase. The Solution: What is a Home Loan Balance Transfer? A Home Loan Balance Transfer (HLBT) is a facility wherein a borrower can transfer the remaining principal of his/her home loan with one lender to another lender at lower interest. The major purpose of a HLBT is to lower the monthly EMI and/or total interest outgo. According to the latest reports and numbers provided by the Reserve Bank of India (RBI) and housing finance aggregators, more than 12% of all home loan deals during FY 2024-25 were balance transfer transactions. This number is steadily climbing year-on-year as borrowers sought respite from increasing repayment pressures. Advantages of a Home Loan Balance Transfer Lower Rates of Interest: Lenders will frequently offer better rates in their effort to obtain new customers. Even if a borrower makes a saving of 0.5—1% on their interest paid, they can save a lot over the life of the loan. Lower EMI Expenditure: Lower interest charges will obviously lead to lower EMIs for the loan borrower. This can leave room for a borrower to do other spending or saving of interest payments. Change of Tenure Length: Most lenders allow you the flexibility to choose the length of time (the term) you want for your loan, which can either be extending your loan term or lowering it. Top Up Loan Option: When you do a balance transfer with most lenders, they provide a top up loan, which can be used for renovation or repayment of education expenses or other personal expenses. Greater Experience and Features for the Customer: As a first-time customer with a lender, their on-line portal, response time etc. will likely be better than the borrower's existing lender. Things To Consider Before Transferring Your Loan Although the advantages of balance transfer are compelling, it isn't a one-size-fits-all solution. Here are important things to consider: Processing Fees and Other Charges When you transfer a loan, costs are involved, processing fees, legal charges, technical evaluation fees, stamp duty, and administrative fees. Processing fees can range from 0.25% to 1% of the loan amount. Remaining Tenure Balance transfer makes more sense if you will be using a significant portion of the loan tenure, or at least 5-10 years will remain. When there are shorter tenures remaining after using the costs associated with transferring the loan will negate or lessen any savings from the transfer. Eligibility Criteria Although the eligibility criteria may vary, to be accepted with most lenders you will need to achieve certain criteria, a good credit score (usually above 700), a consistent repayment history, and adequate income. Documentation Required You'll need to reapply providing documentation such as loan statements, the original papers relating to the property securing the loan, evidence of income, and the KYC (know your client) documents. Steps To Transfer Your Home Loan Compare Offers: Use websites that aggregate offers, or go directly to banks, to compare interest rates and loan terms. Apply for a Balance Transfer with the new lender, Obtain a NOC (No Objection Certificate) and foreclosure letter from your current lender. Complete the Verification and Disbursement Process Repay the existing Loan and commence servicing the new Loan with the revised loan terms. Smart Financial Planning Actually Pays Current repayment EMIs on home loans can take a toll on monthly budgets. A Home Loan Balance Transfer may help you get relief and operate in the black again. There's paperwork and there will be fees, but the savings could outweigh the work — especially if you pursue it early in the loan's life. According to Ramesh Patil, a financial adviser, "A 1% difference in loan rate doesn't seem like much; however over 20 years that might mean a new direction in life. A rupee saved in interest cost is a rupee earned." The majority of individuals are spending too much to service a home loan each month, and the once-obvious question to consider is whether you are working for your home loan, or if your home loan is working for you? Read More: These Four Senior IRS Officers to Principal Commissioner Rank

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