Avoid These Mistakes to Save More with a Home Loan Balance Transfer

Home Loans are a wonderful means for individuals to acquire their dream home, as they alleviate the pressure of accumulating a large sum of money and offer a flexible payment method through Equated Monthly Instalments (EMIs). The EMIs for Home Loans, similar to those for other term loans, consist of a portion of the principal loan amount and an interest rate determined by the lender. However, sometimes it could be the case that another lender is offering better benefits than the one you have borrowed from such as a high amount Top-up Loan or that your current lender is charging you more interest than some other. However, the lending market also offers you a choice to change lenders to secure better terms on your ongoing Home Loan, through a home loan balance transfer. 

What Is Balance Transfer?

Housing loan balance transfer is essentially the process where you move debt with from your current home loan lender to another, for the possibility of more competitive interest rates and other benefits. Some banks also offer extra money on top of the balance transfer, especially for personal and home loans. Moving a home loan to a new lender can save you money, but you need to be careful to avoid mistakes that could reduce your savings.

Balance transfer is a great way to pay off the debts faster. The amount of savings depends on the new interest rate and the length of the loan. It is also a great way to manage finances as borrowers not only get a better interest rate but can also reset the tenure of the loan as per their repayment capacity.

What are the Steps Leading up to a  Balance Transfer?

To initiate a balance transfer, borrowers first need to apply for a foreclosure with the current lender and make an application to the new one. If the old lender refuses to release the property documents, the new lender can release the payment against a letter from the prior. Next, borrowers need to submit their documents required for a loan application with the new lender. Once your Home Loan Balance Transfer request is sanctioned, the new lender will issue a cheque in favor of the old lender worth the outstanding amount. Note that the new lender may charge you some transfer fee. . 

To qualify for the best offers, a high credit score, such as 750 and above, can make a good difference. Applicants may be required to provide all relevant documents as requested by the new lender. Once the process is initiated by the lender, it may take a few weeks for the application to get approved. Once the application is approved, the old balance and the balance transfer fee will show up in the new account.

The details associated with these transfers are numerous. So, mistakes are common in balance transfer. Here is a list of some common mistakes that people make in a balance transfer and how to avoid them.

1. Not accounting all associated fees and costs:

Before you transfer your home loan to another lender, you should carefully examine all the terms and consider all the costs involved. While a lower housing loan interest rate may seem attractive, you should also factor in other aspects such as the overall savings, loan tenor, balance transfer charges, and other fine print details. 

2. Not calculating the finer pros and cons 

To determine if a balance transfer will be less expensive than their current EMI outflow, borrowers should perform a quick calculation. Additionally, they should not overlook the charges that lending institutions may impose for balance transfers. If the loan is being paid over a long period and the borrower is looking to spread out the cost, then undertaking a balance transfer may not be the best option.

3. Neglecting the reputation of the new lender

It is essential to conduct proper due diligence on the reputation and terms of service of a new lender before considering a switch. While a lower interest rate may seem appealing, borrowers should also assess the lender's track record, reviews, business history, and transparency of information. Any warning signs about the lender's reputation could potentially cause problems in the long run and should be taken seriously.

4. Incorrectly calculating the loan tenor:

Before deciding to transfer their Home Loan balance, borrowers should pay close attention to the loan tenure as it is a critical factor. For example, if opting for a longer tenure leads to lower EMIs but a higher interest outflow, it may defeat the purpose of transferring the Home Loan balance. It is crucial to ensure that the loan tenure aligns with the borrower's financial goals and capabilities.

Conclusion

Balance transfer can be a profitable deal as borrowers ultimately pay less than what they would have otherwise paid. It particularly works well with applicants having a high credit score and on high-value loans such as home loans and credit cards.