The current low interest rate regime has led many banks and housing finance companies to offer mortgage interest rates starting at 6.65% per annum.
With such lucrative rates on offer, existing borrowers who handle home loans at much higher interest rates may consider transferring their existing loans to other lenders offering lower rates and / or better terms of service. These borrowers should consider the following factors before opting for the home loan balance transfer option.
Calculate the savings on the overall interest cost: The main reason for opting for a mortgage balance transfer is to reduce the overall interest cost of the loan, especially those with a much higher interest rate, without affecting its liquidity and / or investments. existing. The transfer option is particularly beneficial for existing borrowers who have become eligible for home loans at lower rates due to their improved credit profile.
Ratan Chaudhary, Head of Home Loans, Paisabazaar.com, said: âSince mortgage balance transfer requests are treated as new mortgage requests by lenders, they charge a processing fee, a fee. administrative and other costs associated with new requests. Thus, those who are considering opting for a transfer should calculate their overall savings in interest charges after factoring in the costs to be incurred when transferring the mortgage. Only opt for the balance transfer option if the overall savings in interest charges are significant enough after taking into account the cost involved. “
Existing borrowers who opt for home loan balance transfer may consider a home loan overdraft option if the new lender offers it. In this option, an overdraft account in the form of a savings account or a current account is opened and linked to the new home loan account. Borrowers can deposit excess funds into this overdraft account and withdraw, if necessary. The balance kept in the overdraft account is then deducted from the outstanding loan for the calculation of loan interest. This reduces the cost of interest.
Residual term of the existing mortgage loan: Opting for a mortgage balance transfer during the later stages of the loan term would not be of much help. Mortgage borrowers pay most of their interest in the early stages of the loan term, leaving little scope for interest savings through loan transfers in the later stages.
Chaudhary said, âBorrowers should also try to keep the repayment term of their new home loan after the balance transfer identical to the remaining term of their existing home loan, as opting for a longer repayment term would incur costs. higher interest. Only those looking to significantly reduce their EMI burden should go for a longer term for the new loan. “
Renegotiate interest rates with existing lenders: Since a home loan balance transfer is considered a new loan application by the new lender, the borrower must go through the steps and processes associated with a new application, including loan appraisal, property valuation, etc. Since all of these steps can take a lot of time and effort for borrowers, they should first try to renegotiate the current mortgage interest rate with the existing lender before changing. They should only go ahead with the transfer option if the existing lender refuses to match the rates offered by other lenders on their current home loan.
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