Balance Transfer274 views
- Want maximum savings on your Home Loan Balance Transfer? Ensure you act on these points
- The points are checking the difference of interest rates, keeping the same EMI on a balance transfer, etc.
When burdened with a higher interest rate on a home loan, many find it hard to pay off the Equated Monthly Installment (EMI). This is where a balance transfer comes to your rescue! It reduces the monthly EMI and helps ensure a timely payment, which might not have been possible before. You can switch your home loan from one lender to another at a lower rate of interest and reduce your obligations with a balance transfer. It is now clear that a balance transfer has some savings in store for you. But how can you maximize from a home loan balance transfer deal? We have suggested ways for the same in this post.
The Difference between the Existing and New Interest Rate
The idea of a balance transfer is to pay off the remaining outstanding balance at a lower rate of interest. But how much difference should be there? Also, if you look at the home loan interest rates of banks across India, they have fallen to around 7%-8% per annum following constant repo rate cuts made by the Reserve Bank of India (RBI). So, the rates are pretty affordable. But you can still do some due diligence and choose the best interest rate when doing a home loan balance transfer. Ideally speaking, the difference should be 1%. Even if the new rate is lower than the old one by 0.25%-0.50%, you could save around INR 1-2 lakh.
What If We Tell You to Keep the Same EMI on a Home Loan Balance Transfer?
Well, this is interesting! Above, we told you how a balance transfer helps reduce the EMI at a lower rate of interest. But you do have the option to keep the EMI constant even on a home loan balance transfer. You will ask, why should I do it? Well, if you want to reduce the overall interest, keeping the same EMI on a balance transfer will be handy. Yes, the tenure will reduce and that itself is good as you get rid of the debt faster. An example below will increase your confidence in the same EMI.
Example – You are paying a home loan of INR 40 lakh at INR 8.50% per annum. You have paid EMIs for the last two years and there are 18 years still left. The EMI on this loan will be around INR 34,713, leading to an overall interest payment of INR 43,31,103. If you get the home loan balance transfer offer at 7.85% and opt for the same EMI of INR 34,713, how will it impact your home loan repayment? Let’s check out the table below.
|Repayment Aspects||Repayment Scenario When Keeping the Same EMI on a Balance Transfer||Repayment Scenario When Going for a Reduced EMI on a Balance Transfer|
|Original Loan Amount||INR 40,00,000||INR 40,00,000|
|EMI @8.50%||INR 34,713||INR 34,713|
|Interest Outgo @8.50%||INR 43,31,103||INR 43,31,103|
|Interest Paid for 2 Years||INR 6,66,855||INR 6,66,855|
|Outstanding Balance after 2 Years||INR 38,33,744||INR 38,33,744|
|Same EMI on a Balance Transfer @7.85% (Tenure will be another 196 months from here on)||INR 34,713||N.A.|
|Interest Outgo on a Balance Transfer When Keeping the same EMI||INR 29,80,055||N.A.|
|EMI on a Tenure of 18 Years i.e. 216 Months @ 7.85%||N.A.||INR 33,197|
|Interest Outgo on a Tenure of 18 Years i.e. 216 Months @ 7.85%||N.A.||INR 33,36,777|
|Interest Paid for 2 Years + Interest Paid on a Balance Transfer||INR 36,46,910||INR 40,03,632|
|Savings on a Balance Transfer||INR 6,84,193||INR 3,27,471|
You could see more savings when you keep the same EMI constant on a balance transfer. Yes, there will be a balance transfer fee. So, the savings will reduce slightly. The loan will finish 20 months before the scheduled closing time.
What Will Help You Go with the Same EMI On a Balance Transfer?
Staying with the above example, your income must have risen over the last two years. If your income was INR 75,000 two years ago, it must have risen to INR 90,750 at an assumed 10% annual growth. It’s quite enough to help you go with the same EMI. Even if the income does not rise at that pace, the difference of EMI is just INR 1,516. What you need to concentrate on is a total curb on unnecessary expenses.
Home Loan Balance Transfer Fetches More Benefits When You Do it at the Right Time
Doing the balance transfer at the right time will yield you maximum savings. But what is the right time to do so? Many are not aware of it and thus don’t do it at the right time. Usually, the interest payment remains high in the initial years of the loan tenure. As it goes past a little more than the halfway mark, the interest will be lesser than the principal amount. So, the balance transfer will be ideal if you do within 10-12 years of a 20-year home loan, rather than after 15 years when the savings will not be significant. Plus, there are charges on a balance transfer. That will cut short the savings further.
Look for a Balance Transfer Deal with No Charges
We have hinted about the charges on a balance transfer above. Yes, lenders charge a balance transfer fee, which could either be a flat amount or a certain percentage of the transferred amount. But there are times when lenders come out with a zero balance transfer fee offer. With that, your savings remain higher.
What is Needed for a Seamless Home Loan Balance Transfer?
The lender where you request for a home loan balance transfer will check your credit score and your repayment track. One more thing, the lender will do a property verification just like it would have happened when you applied for the home loan. So, if you have a good credit score aided with a timely repayment track and the property is genuine, the lender will have no problem in allowing you a balance transfer. You need to get the No-objection Certificate (NOC) and loan statement from your existing lender and submit the same to the new lender where you want to switch your home loan.