When and Why You Should Transfer your Home Loan

Demonetisation is playing a key role in the steady decline of Home Loan rates in the current economy. Additionally, shifting your Home Loan from base rate to MCLR will help you switch to lower interest too, since MCLR reflects the Reserve Bank of India’s cut in repo rates, while base rates remain unaffected by an increase or decrease in repo rates. Since the MCLR system was put in place in April 2016, most banks have decreased their loan interest rates to reflect MCLR, and based on the reduction in Home Loan prices across India, other lenders like NBFC and financial companies have lowered their rates too. Thus, it is the next time for new borrowers to take a housing loan and the right time for existing borrowers to benefit from a Home Loan balance transfer.

Here’s more information you will need if you are an existing Home Loan customer and want to save on your monthly EMI payments.

What is the Ideal Time for a Home Loan Balance Transfer?

1. When there are no transfer costs: When opting for a Home Loan balance transfer, the lender will probably charge you for the transfer. If you are switching to a lower floating interest rate, your lender is likely to charge you 0.5% to 1% on your outstanding amount. This cost can be negotiated with your lender to arrive at a mutually favourable agreement. It is advisable for you to look for other options if all your negotiations are proving fruitless.

2. When the tenor remaining is significant: The tenor for a Home Loan ranges from anywhere between 10 to 25 years. However, if you have already made a majority of your EMI payments and are in the last quarter of repaying your loan, avoid doing a balance transfer. This is because low interest will not save you much money since the second half of your tenor mostly consists of repaying the principal and the first half consists of paying off your house loan interest. Thus, you will save a lot of money when you switch a t the beginning or first half or your repayment tenor.

3. When the outstanding principal amount is high: Perform a Home Loan balance transfer when the outstanding principal amount is high enough. Only when you haven’t repaid most of the principal amount can you benefit from the lower rates of interest on Home Loan offered by a new lender. If you have a small amount of outstanding principal it is unwise and futile to apply for a Home Loan balance transfer.

4. Times during which the MCLR is at its lowest: Certain economic scenarios cause a reset in the interest and the MCLR is one such factor. The MCLR is the minimum rate of interest below which lenders usually cannot lend. Now that banks are revising Home Loan interests based on MCLR, this is good news for most home buyers and loan borrowers, as it lowers interest costs. So make a Home Loan transfer when the MCLR is low to make your loan cheaper.

Primary Benefits of a Home Loan Balance Transfer

There are numerous advantages of Home Loan balance transfer; some of them are listed below:

1. A Home Loan balance transfer lets you opt for a lender that offers lower interest rates and thus can save you some income

2. Allows you to experience the new and possibly better customer service

3. An informed Home Loan balance transfer can save you from paying expensive EMIs

4. It is possible that your new lender could offer you incentives like cheaper or zero cost prepayment options and other added benefits

5. A loan transfer can also give you a good top up loan at an affordable rate as further financial assistance