The home loan balance transfer is an option by which your outstanding loan balance is transferred to another lender. There is a fee charged on the balance transfer, often a percentage of the outstanding loan amount.
What are reasons for a home loan transfer? Well, the primary reason is to get the benefit of lower interest rates and save money.
Another reason is that sometimes you might want to increase the duration of your loan by a few more years to ease the current EMI amount. If your current bank is not amenable to the suggestion, switching to another bank might do the trick, particularly if you have a good repayment track record.
Understanding the worth
If the difference in the rate of interest of your current lender and the new lender is between 5-20 bps, then it is better to continue with the current lender. If the rate of interest offered by the other bank is greater than 25 bps, then you can consider switching. However, before making the decision, it is also imperative to consider aspects like processing and documentation fees.
Once you have made the decision, do a thorough check on interest rates, transfer fees, reviews of the services offered, and other aspects of the bank you are planning to switch to. Pick two or three prominent banks and do a cost-benefit analysis. Figure out what would be your savings (or losses) if you switch to any of them. For example, if you are on a fixed interest rate plan, the penalty you incur for pre-payment might not be worth the trouble of switching. On the other hand, if you are on a floating interest rate plan, then you can easily switch from the higher interest rate to a lower one.
The procedure
- Visit the website of the new lender and check interest rates, processing fees, eligibility, and a list of documents required.
- Once convinced, apply online for a home loan balance transfer.
- You will have to furnish property details, personal details, existing loan tenure, name of the bank, among others.
- Post completion, you can view the loan offer.
- You will have to pay the fees and upload the required documents.
- You can then finish the application and await approval from the new lender.
Documentation
While this may slightly vary from one bank to another, the following is the list of some common documents.
Personal
- Loan application
- Proof of identity
- Proof of residence/ address
- Employer identity card
- Salary certificate of last three months
- Copy of Form 16 for last two years or copy of IT Returns for last two financial years
Property Papers
- NOC from society/builder
- Registered agreement for sale
- Occupancy certificate
- Electricity bill, property tax receipt
- Chain of all old agreements for sale
Account Statement
- Last six months bank account statements for all bank accounts held
Documents from the other bank
- List of original documents held at the bank
- Loan a/c statement for the past year
- Sanction letter
Final step
The new bank will then approve the transfer of the balance principal amount to the old bank. There might be some delay during this process as your current bank cannot release all the documents until it has received the payment or at least the approval for payment notice from the new bank.
What are the charges?
For transferring your home loan from one lender to another, you may have to pay charges to both lenders. The bank can levy prepayment charges if your loan is at a fixed rate. Do check your home loan agreement at this point.
You will have to pay the processing charges to the new lender. Again, this may vary from one lender to another and also depend on the applicant’s profile. At times, banks may even waive the transfer fee.
If the property in question is not approved by the new lender, they might go for a fresh valuation of the property. Hence, you may also have to pay the valuation charges.
To conclude
- Read every document keenly and unearth hidden charges, if any. Many banks don’t state outright the documentation charges, legal fees, and processing fees, which later adds up to the cost of the loan transfer.
- Evaluate the tenure of your loan. If you are still in the early years, it might be a good decision to switch, but if you only have a few more years left, then it might not be worth it.