What are the Benefits of Transferring a Home Loan?
Last Updated : Feb. 4, 2022, 3:53 p.m.
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 Variables | Amount (In INR) |
|---|---|
| EMI Payable at 7.80% | 41,202 |
| Interest Payable at 7.80% Over 20 Years | 48,88,432 |
| Interest Paid Over Two Years | 7,63,619 |
| Outstanding Loan Balance at the End of Two Years | 47,74,775 |
| EMI Payable at 7.30% | 39,780 |
| Interest Payable at 7.30% Over the Next 18 Years | 38,17,640 |
| Interest Paid Already + Interest Payable on a Balance Transfer | 45,81,259 |
| Savings | 3,07,173 (48,88,432-45,81,259) |
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 Variables | Amount (In INR) |
|---|---|
| EMI Payable at 7.80% | 41202 |
| Interest Payable at 7.80% Over 20 Years | 48,88,432 |
| Interest Paid Over Two Years | 7,63,619 |
| Outstanding Loan Balance at the End of Two Years | 47,74,775 |
| EMI Payable at 7.30% | 41202 |
| Interest Payable at 7.30% Over the Next 16 Years and 9 Months | 35,12,600 (Approx.) |
| Interest Paid Already + Interest Payable on a Balance Transfer | 42,76,219 |
| Savings | 6,12,213 (48,88,432-42,76,219) |
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.