Home loan EMIs can impose a substantial burden on the monthly outgoes of a borrower. It primarily holds when individuals incur said burden during a financial crisis. Therefore, to avoid the predicament of missing out on EMI payments, several individuals opt for a loan balance transfer.
Furthermore, since a home loan is a long-term obligation, often going as long as 20 years, it is imminent that at some point in the course of a loan tenor another lender might offer lower interest rates. Thereby, borrowers who are already repaying a loan might find it lucrative to shift to such a lender to bring down their EMI and interest payment.
Here are a few simple steps how you can carry out a home loan transfer –
- Notify existing lender
The primary step to a home loan refinancing is to notify the existing lender. You need to draft an application letter stating the reasons or points that have prompted your decision for a loan balance transfer. It must contain reasonable points to strengthen your case.
Additionally, specific financial institutions also require borrowers to fill out an application form. Ensure whether your lender has such formalities in place before issuing an application letter.
- Partake in negotiation
Your lender might want to negotiate with you for retention purposes. Therefore, ensure that you have done a thorough profitability analysis of such loan balance transfer.
- Apply for a NOC
It is one of the most critical steps in carrying out a loan refinancing. You need to obtain a No Objection Certificate or NOC from your lender concerning such balance transfer. Another lender would not admit your application for a balance transfer without a NOC from your existing lender.
- Collate and submit necessary documents
After obtainment of the NOC, you can contact your lender to conduct the documentation process for a home loan refinancing. However, firstly, you need to collate all documents required for a loan balance transfer – both original and copies.
Such documents usually include –
- OVDS for KYC.
- Income proof – Salary slips, bank account statements, etc.
- Property ownership papers or rental agreement.
Take note that a lender might require additional documents to process your application.
- Confirm closure of the existing account
You need to ensure that you have retrieved all post-dated cheques from your existing lender to confirm closure of your existing account. Furthermore, you might need to pay foreclosure charges to terminate your loan account before tenor.
- Sign a new loan contract
Lastly, you need to sign a new loan contract with your new lender. Thereby, it shall process the payment of the outstanding balance to your existing lender, thus, formally terminating the previous loan indenture.
That concludes your balance transfer. However, before you go forward with it, there are certain things to keep track of when you do a loan balance transfer. These are –
- Balance transfer timing
Perhaps the most crucial consideration when carrying out a balance transfer is its timing. Ideally, you should only go forward with a loan refinancing when in the initial or middle stages of a loan tenor.
It is because initially, the interest outgo via EMIs is considerably higher than in the later stages of a loan tenor. Therefore, to save on interest, you should prefer timing the transfer when the interest outgo is still hefty to gain from the overall transaction. You might use a home loan transfer calculator to ease the analysis.
- Check eligibility criteria
You ought to check whether you fit the eligibility criteria of your preferred lender before applying for a balance transfer for a home loan. It might vary from one lender to another; therefore, be thorough with that research before deciding on any specific lender.
In addition to a couple of points mentioned above, you should also check for benefits like a top-up loan that specific lenders provide when you transfer your balance to them.
To conclude, ensure to account for the interest rate gap as well as other associated charges before opting for this facility. It will help you to analyse the profitability of a balance transfer.