It is everybody’s dream to have a house of their own and a home loan can be very helpful when someone doesn’t have enough funds for that. Taking a home loan is not the end for taking a house of your own. Different banks charge different interest rates on home loans offered by them. If someone takes a home loan and later finds out about better option in reference to the interest rates, the person can switch to other bank. This is known as home loan balance transfer. The new lender(the switched bank) pays off the unpaid principal loan amount to the old lender(the bank which lended the money to the person) and the person has to pay the EMIs to the new lender at a new reduced interest rate.
Benefits of Home Loan Balance Transfer
Here are a few benefits that tempts many people to switch their home loan to one bank to the another.
Increase loan amount: There are situations when a person needs to renovate or furnish his/her home and the person wants to take a top-up loan from the bank. If the bank refuses for this, the person has the option to transfer the home loan to another bank who will lend money to the person for extra expenses like renovations etc.
Better service: Even when a person is satisfied with the interest rate charged by the bank, he can still switch to another bank because of bad service provided by the bank. For many customers, getting a good service is very important.
Reduces rate of interest: When the current bank does not reduce the interest rate even when a person has a good repayment history and good relationship with the bank, most of the people transfer their home loans. This means either the loan tenure will be reduced or the EMIs that a person has to pay will be reduced.
Enables negotiation of loan terms and conditions: A person might not be satisfied with the terms and conditions of the loan. Transferring the loan to another bank gives a person an opportunity to negotiate the terms and conditions of the loan along with the interest rates.
Check these points to know if you are eligible for Home loan balance transfer
- There should be a clear history of 12-18 months unbroken repayments on his/her current home loan to become eligible for Home Loan Balance Transfer.
- Minimum age should be 21 years and maximum should be 60 years (in case of salaried) and 65 years (in case of self-employed).
- Minimum work experience should be of 2 years, with the last 1 year spent in the current organization. For self-employed individuals, the expectation is 2 years in the same profession with the filing of the requisite ITR.
- The income of the applicant should meet the minimum income required by the bank.
- Some banks may also require a definite gross family income and a clear credit history and a good CIBIL score.
These documents are required in the process of Home Loan balance transfer:
- Identity proof
- Residential proof
- Fully filled application form
- Proof of age
- For salaried individuals- income proofs like last 6 months bank account statements that shows salary credit, last 6 months salary slips and Form-16 accounting for last 3 years.
- For self employed individuals- last 3 years ITR(self and business), last 12 months bank account statement etc.
- Bank statements of account from where EMIs were deducted.
- List of documents relating to the property, that is currently in possession of the present home loan lender. Also, the Loan statement copy.
- Passport size photographs
Things to keep in mind
Before a person transfers his loan, he should keep a few things in his mind before finalizing the transfer of the home loan:
Remaining loan tenure: While transferring the loan, it is important to first check the remaining tenure of the loan. Transferring the loan at a time when only a few years of the tenure are remaining is not beneficial because refinancing a home loan is just like taking a new home loan and you may have to pay extra charges also.
Credibility of the bank: It is also important to check the credibility of the bank providing you lesser rate of interest. It is important to make sure that it is not just a trick to lure the customers and then increase the interest rates.
Total cost of loan transfer: Transferring a home loan is just like taking a new loan where the person has to pay fees like processing fee, prepayment penalty charges, stamp duty etc. Is is important to calculate the amount properly for making sure that you are getting benefit by transferring the loan.
Service quality: The person should make sure that the new lender provides good services to its customers so that in case of any issues you can ask them to help you out.
Reading the documents properly: In order to transfer the loan, it is important that the applicant reads all the loan related documents so that there are no confusions and issues between the old bank or the new bank.
Procedure for Home Loan Balance Transfer:
- Submit a request to the current lender bank for transferring the loan.
- Collect the bank statement regarding the remaining amount and the NOC (No Objection Certificate) from the current lender.
- Submit the NOC and the statement to the new lender for the closure of the loan, after which the documents of the property will be transferred from the old bank to the new bank.
- All the pending post dated cheques which the old bank had will be cancelled.
Comparison of floating interest rates charged by different banks
Comparing the interest rates provided by different banks makes it easier for a person to take better decision and finalize the transfer of home loan.