- Is it right to do a home loan balance transfer in COVID times?
- Also, whether lenders will allow a balance transfer given the prevailing economic crisis - Read this post to know all
The interest rate of floating loans such as home loans has come down significantly to 7-8.50% per annum after the Reserve Bank of India (RBI) cut the Repo Rate by 115 basis points (100 basis points = 1%) in its two monetary policy meetings held in March and May 2020. However, in its latest meeting which was held from August 4-6, 2020, the central bank put a pause on the interest rate keeping in mind the elevated Consumer Price Index (CPI) Inflation, which moved up from 6.23% in June to 6.93% in July. The inflation may harden further in the near future as there are supply-side shocks due to temporary lockdown in certain states. In an inflationary scenario, the RBI stays away from cutting the repo rate. Rather, it hikes the same, but given that the effect of the ongoing COVID-19 pandemic is still there, the RBI may not do the same.
Amidst all, many existing borrowers are wondering whether they should make a home loan balance transfer or stick with the present lender? If you are one of those, this article could help clear that confusion. Keep reading!
How Can You Decide About a Home Loan Balance Transfer in the Current Situation?
As per news reports, the RBI may put a hold on the repo rate for the rest of 2020 as inflation may take a while to ease and come under the comfort band of 2-6%. If that turns true, there may not be an interest rate movement for at least this year. Now, you need to check your home loan interest rate and compare that with the rates prevailing elsewhere. If your present rate is quite higher than what’s available at other lenders, it makes sense to go for a balance transfer, which is a process by which you can transfer your existing loan to another lender at a lower rate of interest. Also, check how much time is left for the loan to get over. If the loan has run less than half the length of the original tenure, it’s apt to go for a home loan balance transfer. You can understand this better with an example below.
Example – You are servicing a 20-year home loan of INR 60 lakh at 8.60%. The loan has run for 7 years. The average home loan interest rate for the said loan quantum has come down to 7-8%. In case the new lender offers you a home loan balance transfer facility at 7.80% per annum, how will it benefit you? Let’s find out in the table below.
|Home Loan Repayment Aspects||Amount|
|Original Loan Amount||INR 60,00,000|
|EMI at 8.60%||INR 52,450|
|Interest Payable @8.60% Over 20 Years||INR 65,87,944|
|Interest Paid Over 7 Years @8.60%||INR 33,22,110|
|Outstanding Loan Balance||INR 49,16,330|
|New EMI @7.80%||INR 50,242|
|Interest Payable @7.80%||INR 29,21,444|
|Interest Paid Over 7 Years @8.60% + Interest Payable @7.80% Over the Next 13 Years||INR 62,43,554|
|Savings in Terms of EMI||INR 2,208 (52,450-50,242)|
|Savings in Terms of Interest||INR 3,44,390 (65,87,944-62,43,554)|
The new lender will deduct a balance transfer fee, so your savings will reduce a bit from what is shown in the table.
Will a Home Loan Balance Transfer Happen Easily in the Present Times?
Presently, lenders have had to make provisions for loans which they feel might become bad (bad loan means irrecoverable debts) given the loss of jobs that a lot of borrowers have witnessed so far due to the COVID-19 pandemic. The ongoing crisis has rendered many incapable of paying their loan. A lot of them have availed the EMI moratorium that the RBI had announced on March 27, 2020, considering the economic crisis. The moratorium means a pause on EMI payments for a specified period. However, it’s not an EMI waiver. The moratorium was applicable for all retail loan outstanding payments till May 31, 2020, before it got extended further till August 31, 2020. If your current home loan is under a moratorium, you may be denied a home loan balance transfer to another lender. If you haven’t availed a moratorium, the new lender will go through the credit report rigorously and approve only when it finds your repayment record spotless. The new lender could place a condition of a specific credit score before it approves the home loan balance transfer deal. A good credit score is anyways 750 and above. This time around, your income will be evaluated thoroughly as the new lender would like to be fully convinced that you can repay the loan on time.
What Interest Rates Will You Get If You Do a Home Loan Balance Transfer Now?
The interest rate on a home loan balance transfer will differ from one lender to another. It will also depend on the transferred balance, the type of profession you have, as well as your credit score. Check out below to know the home loan interest rates that are likely to be the case on a balance transfer.
|Lenders||Interest Rates (In Per Annum)|
|State Bank of India (SBI)||9.15% - 11.30%|
|HDFC Limited||8.50% - 9.40%|
|ICICI Bank||Salaried - 7.60%|
Self-employed - 7.75%
|LIC Housing Finance (LIC HFL)||8.50% - 10.75%|
|Bank of Baroda||8.50% - 10.60%|
|PNB Housing Finance (PNBHFL)||8.50% - 11.95%|
|Axis Bank||8.75% - 9.15%|