If done at the right time, a home loan balance transfer could yield massive savings for borrowers. It is a process by which you can transfer your existing home loan balance to another lender at a lower rate of interest. Not only that, you can also apply for a top-up (additional loan amount) on the transferred balance. The utility of a balance transfer is immense in terms of savings and flexibility. But it does not come that easily for borrowers. There are some eligibility criteria for borrowers to meet, such as a good credit score, strong income, etc. Some borrowers fail to meet those and end up getting their home loan balance transfer application rejected by the new lender. To ensure your balance transfer application is processed successfully, you need to stay free of shortcomings. Let’s read further to know things in detail.
Poor Credit Score
While applying for a regular home loan, the credit score may not be that important for getting approval. But when it comes to a home loan balance transfer, the new lender will be extremely particular of the credit score you have. In case it is poor (below 600) out of the maximum i.e. 900, the lender can so easily deny your balance transfer application.
Issues in Repayment
It’s not only the credit score that matters in a home loan balance transfer, but also the overall repayment track of your running home loan. If there are instances of delayed home loan EMI payments, the new lender will check the extent of the delay. If the delay is quite long, it makes a strong case for rejection. Considering the current scenario where the COVID-19 pandemic has made banks and housing finance companies (HFCs) cautious towards fresh lending, spots of delayed payments will only make them reject a home loan balance transfer.
When You Fail to Make Payments of Other Loans on Time
It is possible that you go on to take more loans after taking a home loan. Even if you are paying your existing home loan EMIs on time but are struggling to do so on other loans, the balance transfer request can be denied.
LTV Norms Not Getting Met Owing to COVID
A home loan balance transfer is treated as a fresh loan for a new lender. So all those property valuation processes that must have happened at the time of your home loan application will happen in a balance transfer too. Now that we are living in the times of COVID-19, lenders have tweaked loan to value ratio (LTV) norms. Previously, lenders used to fund 90% of the property value for loans upto INR 30 lakh, 80% for loans above INR 35-75 lakh and 75% for loans above INR 75 lakh. As the income situation has worsened for most due to COVID, lenders have started to fund less than what is stated above. Due to such stringent norms, many balance transfer applications are not getting approved. Even if the lender agrees to do a balance transfer, the top-up on it will most likely be rejected given the situation that prevails now.
When Customers Make Unacceptable Changes to the Structure of the Property
The technical verification of the property happens not only when you take a home loan, but also when you switch from one lender to another using the home loan balance transfer facility. You may make changes to the structure of the property, not in line with the property map. In that case, the lender can reject your case. Even if it approves, the interest rate will be higher, and with that, the purpose of a home loan balance transfer gets defeated. People do a balance transfer to service the loan at a lower rate of interest. In case the increased rate comes closer to what you are servicing at, you won’t enjoy going ahead with the transaction and doing the required formalities like requesting your existing lender to issue you a No-objection Certificate (NOC) and the loan statement.