According to a report, TransUnion CIBIL data shows that home loan enquiries were up by 112% in July-August 2020. This shows a renewed interest in the housing loan sector, post the economic slowdown.
Nevertheless,most existing borrowers are unable to pay the outstanding home loan balance due to financial constraints. To solve this issue, financial institutes offer home loan balance transfer facility wherein a creditor can reduce their monthly instalment by transferring an account to a lender offering lower interest rates.
Before opting for a loan balance transfer, few factors must be considered to avoid complications later on.
What is home loan refinancing?
Home loan refinance is the transfer of outstanding home loan balance to a financial institution offering lower interest rates. A borrower who is unable to cope with his/her current EMIs can consider such an option, as they can limit financial burden.
A home loan balance transfer can be useful when debtors want to borrow more funds, reduce their loan tenure and avail favourable terms on loan.
Moreover, several financial institutions nowadays offer a top up loan of up to Rs. 50 lakh with nominal interest rates after refinancing a credit. They also provide a pre-approved loan offer that makes the loan approval process hassle-free and swift. Such offers are available on a range of financial products, such as home loans, loan against property, etc. You can check your pre-approved offer by entering your contact number and name.
Five factors to check before refinancing
Any borrower who has a standing home loan and a regular payment record of a year or more can apply for a home loan balance transfer. Before opting for this process, a person must know the reasons to refinance home loan.
Here are some pointers to check-
- Interest rate: One must consider whether the interest rate on offer from the new lender is substantially lower than what your current financier offers. As a rule, if the rate is lower by at least 0.5% or more, refinancing a home loan can be beneficial.
- Credit history and rating: A person’s credit score shows his eligibility to opt for ahome loan balance transfer. If the borrower has been inconsistent in paying EMIs, it naturally degrades the CIBIL score. Thus, it is integral to service housing loan EMIs on time without fail. Otherwise, you may not be eligible for refinancing.
- Charges added on balance transfer: Every home loan borrower must know that transfer of balance leads to the addition of several charges like application fees, inspection, administration charges and more. If these payments result in more of an expense than what you save in interest outgo with a balance transfer, moving ahead with the move would not be beneficial in any way.
A smarter way will be evaluating the cost of transfer to make the best out of the process. One can also take the help of the home loan balance transfer calculator,which is easy to use.
- Suitable time for the loan transfer:If you are in the initial years of home loan repayment, undertaking a refinance would be useful, as, at such times, interest outgo is more and principal repayment is limited. In later years, balance transfer would cost more than it would help you save.
- MCLR rate:Marginal Cost of fund Based Lending Rate helps determine the interest rate as per RBI guideline. Therefore, knowledge of MCLR Rate will help to negotiate with lenders regarding EMI.
Apart from considering these five factors, a person should know the reason for choosing a home loan balance transfer to avoid mistakes in future. Proper research and information will help a borrower make the best out of the balance transfer system.