What are the Benefits of Transferring a Home Loan?

Losing sleep over massive home loan interest payments every month? You are not alone! Most individuals don’t compare interest rates of different lenders before choosing a home loan. This results in higher interest payments to the lender. However, you can always do a course correction by transferring your home loan to another lender at a lower interest rate. It will help curb interest payments greatly over time. Other benefits too come with a home loan balance transfer. Keep reading to know the same.

Benefits of Home Loan Balance Transfer

Besides lowering your interest payments, a balance transfer can help finish your loan quickly, apply for an additional amount over the same, etc. We’ve elaborated on these below. Take a look!

Reduced Interest Payments

Check the interest rate offered to you by the new lender on a home loan balance transfer. Even if the offered rate is lower than the current one by 0.25-0.50%, you could save around INR 2-3 lakh. Consider an example to understand the mathematics better.

Example – You have been paying a 20-year home loan of INR 50,00,000 at an interest rate of 7.80% per annum for the last two years. Now, if a new lender comes with an offer of 7.30%, how much can you save should you go ahead with the deal?

Loan Can Wrap Up Earlier Than Scheduled

You could finish paying your home loan earlier than scheduled if the season of low interest rates continues for long. The constant rate reductions made by the lenders help in the faster payment of the principal outstanding, thereby helping you finish your loan earlier than scheduled. The rates can rise too based on the decision the RBI takes in its bi-monthly monetary policy review. But since 2019, the RBI has only cut the repo rate, the rate at which it lends to commercial banks. The RBI repo rate has been slashed by 250 basis points (2.50%) since 2019. The interest rate of banks has thus dropped 2.50% since. Even as inflation has spiked recently, the RBI has not raised the repo rate. And given its accommodative stance supporting economic growth, the interest rate may not rise in the near future.

Other Way You Can Finish the Loan Before Time

While transferring a home loan, you can choose to pay the same Equated Monthly Installment (EMI). It will help reduce the length of the loan automatically. What’s more, the interest obligations would reduce even more. Let’s consider the above example with a few modifications to understand the concept.

Loan VariablesAmount (In INR)
EMI Payable at 7.80% 41202
Interest Payable at 7.80% Over 20 Years48,88,432
Interest Paid Over Two Years7,63,619
Outstanding Loan Balance at the End of Two Years47,74,775
EMI Payable at 7.30% 41202
Interest Payable at 7.30% Over the Next 16 Years and 9 Months35,12,600 (Approx.)
Interest Paid Already + Interest Payable on a Balance Transfer42,76,219
Savings 6,12,213(48,88,432-42,76,219)
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By keeping the same EMI, your loan would finish in 18 years and 9 months, more than a year before the scheduled closing date.

Top-up Offer

You can even apply for a top-up on the transferred home loan balance to meet your other needs. The top-up amount will add to the transferred balance, and you can get both at the same rate.

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Personal Loan Interest Rates October 2022
Fullerton India12.00% - 24.00%
HDFC Bank10.99% - 15.00%
ICICI Bank10.50% - 18.00%
IndusInd Bank10.49% - 31.50%
Kotak Bank10.75%
RBL17.50% - 26.00%
Standard Chartered Bank10.75% - 13.00%
Tata Capital10.75% - 18.00%
Home Loan Interest Rates October 2022
Axis Bank7.60% - 8.05%
Bank of Baroda7.45% - 8.80%
Citibank6.65% - 7.40%
HDFC8.10% - 9.10%
ICICI Bank7.10% - 8.85%
Indiabulls Housing Finance Limited8.65%
Kotak Bank7.99% - 8.60%
LIC Housing8.00% - 9.25%
Piramal Capital & Housing Finance10.50%
PNB Housing Finance8.00% - 10.70%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI8.00% - 8.55%
Tata Capital7.75%