Introduction
Are you currently paying off a housing loan? If so, you might be aware that interest rates in the home loan sector can vary periodically due to market fluctuations. As a result, homeowners are always on the lookout for better loan schemes with lower interest rates. One option that provides borrowers with the opportunity to secure lower interest rates is a home loan balance transfer.
A home loan balance transfer involves switching your existing home loan from one lender to another who offers better terms and lower interest rates. While this may seem like an appealing option, it is important to understand the pros and cons of home loan transfer before making any moves. In this article, we will explore the benefits as well as the drawbacks of a home loan balance transfer, empowering you to make an informed decision.
Home Loan Balance Transfer – Pros
Let's start by discussing some of the advantages of a home loan balance transfer:
1. Reduced Interest Rates: One of the primary reasons borrowers opt for a balance transfer is to take advantage of lower interest rates. Interest rates have a significant impact on the overall cost of your home loan. By securing a lower interest rate through a balance transfer, you can potentially save a substantial amount on interest payments over the course of your loan repayment period. This is one of the significant benefits of home loan transfer.
2. Enhanced Credit Score: Another benefit of a balance transfer is the potential improvement in your credit score. Maintaining a high credit score is crucial for securing attractive housing loan interest rates and credit deals in the future. By transferring your home loan to a lender offering better terms, you demonstrate responsible financial management which can positively impact your creditworthiness.
3. Cost-Effective Loans: The primary objective of a balance transfer is to save money. With reduced interest rates, your housing loan becomes more affordable, making it easier to repay. This enables you to budget proactively and plan for pre-payments, which can further decrease the interest outgo and help you close the loan sooner.
Home Loan Balance Transfer – Cons
While there are several advantages to a home loan balance transfer, it is equally important to consider the potential downsides:
1. Tricky Terms and Conditions: Even if you manage to secure the best transfer deal in the market, it's crucial to carefully review the terms and conditions. Failing to understand the fine print could lead to unforeseen financial complications down the line.
2. Loan Approval Process: When you opt for a balance transfer, you essentially go through the home loan approval process once again. This involves legal verification of documents, credit appraisal, and meeting eligibility criteria set by the new lender. There is a chance of rejection if you don't meet these parameters, potentially delaying or derailing your plans.
3. Additional Fees and Charges: It's important to be aware that there are several charges and fees associated with a balance transfer. If you're not cautious, these costs can add up and make your transfer option an expensive proposition. Calculate these charges when assessing the viability of a loan shift.
What is a Home Loan Transfer to Another Person?
Now that we know home loan advantages and disadvantages, we will find out what is a home loan transfer to another person. In addition to transferring your home loan from one lender to another, it is also possible to transfer the loan to another individual who wishes to purchase the property against which the loan is secured. This internal balance transfer occurs when an existing borrower sells their property and transfers both ownership rights and the outstanding home loan balance to the buyer.
To Transfer a Home Loan to Another Person:
- Request Foreclosure: The existing borrower must furnish a letter requesting foreclosure against the sale of the property.
- Buyer Application: The buyer interested in purchasing the property may apply for a home loan with the same lender. They need to submit a duly filled application form along with the applicable processing fees.
- Documentation: The buyer must provide KYC documents and income proof to the lender. The property undergoes a legal and technical evaluation to determine its current value. A No Objection Certificate (NOC) from the developer or relevant authority is also necessary.
- Loan Closure: The lender issues a cheque to the seller/owner after closing the ongoing home loan with the proceeds of the newly sanctioned loan. The seller hands over copies of property-related documents to the buyer, while the originals remain in custody with the lender until complete repayment of the loan.
Conclusion
There are several benefits for home loan balance transfer if done at the right time. By securing lower interest rates, you can save money on interest payments and improve your credit score. However, it is important to carefully review terms and conditions, be prepared for another loan approval process, and consider any additional fees associated with a balance transfer.
Before deciding whether to transfer your home loan, it's advisable to negotiate with your current lender first and explore options for better deals. This can save you time and energy if you're able to secure improved terms without switching lenders.
Use online tools like Tata Capital's Home Loan Balance Transfer Calculator to compare different transfer schemes available in the market based on your preferences and financial goals. You can also make use of Tata Capital App for more information.
Remember, when considering a home loan balance transfer or any financial decision, ensure you are well-informed and seek professional advice when necessary.
21 June 2024
5 mins read
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