Home loans can be your saviour of the day or the enemy of your night, it is how a borrower deals with the loan is important. While home loans benefits are many if taken into consideration unless and until taken from a bank that offers tremendously exceptional benefits to the customer. Now, the main concern every consumer has while taking up the home loan is the interest rate attached to it. Interest rates can have benefits as well as issues. Now, the main concern lies with a customer about from where he can get the lowest interest rates from a bank or a financial institution. This seems interesting for him even if he finds out there is a drop of 0.5% or 1% in the interest rate offered to him by another bank. But, Halt! He must first of all examine that whether he should go for a home loan balance transfer or not.
A balance transfer is a process where a consumer can shift the current home loan from the current bank to another bank who is offering better benefits and lower interest rate. The balance transfer is available at all the banks and is applicable to floating interest rates of a particular loan. While it can be used for any loan borrowers usually opt for it in the home loan segment to save over the period of time. The bank which allows the home loan to you gets the unpaid amount by the other bank and now you have to pay back the amount to the new bank that has extended the loan to you. Borrowers often without giving a second thought opt for it. Before taking a further step he must look at the consequences added to it.
Firstly the borrower should examine both the banks and compare the benefits and the costs by doing a simple math calculation. Secondly, he should see the following aspects while transfer i.e. the amount of the home loan, the tenure, the interest rate, the current EMI and the savings opted by the change.
Well, if the borrower is getting a better deal by the balance transfer of the home loan then he/she should definitely opt for the balance transfer option. But, here is the thing that a borrower should avoid to do the balance transfer process in the following situations.
A balance transfer is not recommended when you have less number of years left in the home loan maturity. A balance transfer is always recommended in the beginning of the tenure of the home loan. You can save more in the upcoming years by transferring the amount to another bank or NBFC who is providing you with even 0.5% less on your home loan.
For instance, if you borrow a home loan of INR 1 crore from a bank for a period of 20 years over the interest rate of 10% P.A., then your EMI would be INR 96,502. Well, if another bank provides you with the similar loan of the remaining amount at 9% rate of interest then, you would be paying off the interest of INR 89,973 i.e. a reduction of INR 6529 a year which will eventually save you off INR 130,580. Well, if the similar transfer is done during the last 5 years of the maturity of your home loan then it is of no worth. As not many savings could be gained over the period of time if the home loan is transferred during the period maturity is going to be achieved shortly.
A balance transfer is recommended when the loan amount to be payable is big. If the loan amount left to be paid is small then it is no worth. The same loan example can be taken in this case. Where the amount and the interest rate is same. If the balance transfer is done in the first 5 years of the home loan then it is a deal that a borrower can definitely move ahead with. Also, if the balance transfer is done during the last 5 years of the maturity of the loan then it is not advisable. As the bank takes a considerable amount of the balance transfer and the processing fee for the same. So, you shouldn’t’ opt for the home loan balance transfer option.
Lastly, the balance transfer should be done considering the following variables in mind or you may end up in a deal where you might not gain much in the end. So, you must avoid such circumstances for the balance transfer of the home loan.