Is it Allowed to Switch Home Loan Financer During Loan Tenure?
Do you know that you are allowed to switch home loan during your loan tenure? This facility is called balance transfer. In balance transfer, the lender lets you switch your home loan to a new lender for better features like lower interest rates by paying a fee. When you apply for balance transfer, the new lender pays the outstanding balance to the existing lender and closes the home loan. Once it is done, you can then pay the remaining EMIs to the new lender.
How to Transfer Your Loan?
- Apply for home loan balance transfer from a new lender.
- Once it is approved, obtain NOC from the current lender.
- Submit all the requisite documents to the new lender.
- When the existing loan is foreclosed, you can start paying the EMIs to the new lender.
When Should You Opt for a Balance Transfer?
- When you are getting a lower interest rate on the new home loan that would reduce your EMI and the cost of borrowing.
- When you are getting better deals like better repayment terms, top-up loan, seamless online presence, better customer service, no prepayment fees, etc.
- The remaining tenure is long enough to help you save on interest
Things to Know While Switching Home Loan
- The repayment amount contains two components – interest and principal. During the initial years, you pay a higher part of the interest component. Therefore, it is always better to transfer balance in the initial years of your tenure to take the benefit of a lower interest rate on the new home loan.
- You must be eligible for a balance transfer, hence, check the eligibility of the new lender before applying for transfer.
- If you inform the existing lender about the transfer, they might try to retain you. You can then negotiate on the interest rate by leveraging your credit score and repayment track record.
There are several costs involved in a home loan balance transfer, which you should be aware of before making the switch. The costs include foreclosure charges, processing fees, incidental charges, etc. These costs should not exceed the benefits that you could get by switching your home loan. Before applying for a balance transfer, you must do the cost-benefit analysis of the balance transfer to ensure that you gain by the switch.