Home loans fall under the long-tenure category loans whose tenure goes up to 30 years. Hence, most borrowers spend a large amount on servicing it.
Additionally, more than 50 per cent of a home loan EMI component during the loan tenure remains the interest amount that a borrower pays to the bank. Therefore, if you think you are paying high interest and EMI to your current bank, you can consider transferring your home loan to another bank.
Nonetheless, with the home loan rate of interest hovering around 7 per cent and even below, this seems to be an ideal time to opt for a balance transfer.
Industry experts suggest that this could be an ideal time to opt for a balance transfer especially for anyone who has bought a home loan in the last 5 years or so and still has a significant tenure left. Home loan interest rates are at a 10-year low and have been on a declining trend.
Pramod Kathuria, Co-Founder and CEO, Easiloan says, “While there can always be an upward fluctuation which is difficult to predict, in recent, there hasn’t been a better opportunity for a balance transfer.”
While balance transfer gives you savings on your EMI or lowers your loan duration it is critical that you leverage it at the right time. This is because a transfer process incurs some charges, paperwork, and also the risk of potential hidden costs from the new lender.
Having said that, experts say borrowers should opt for this when they have a substantial outstanding amount or duration of at least 10 years left in their home loan and are getting a much better deal from another lender.
Keep in mind, your loan balance is a mix of principal and interest and interest repayment is always frontloaded by the lender. Hence, you get maximum savings from a balance transfer only when you have a significant outstanding. Therefore, “if one is at such a stage when they are getting a much better deal from another lender with their loan repayment, one should go for it,” adds Kathuria.
Having said that, note that the timing is critical and as a borrower, you should opt for a balance transfer when you are in the first half of your loan tenure.
Experts say a borrower should always work out the time and charges that he/she will invest in against the savings that they will make. Under such instances, a host of balance transfer calculators provided by bank websites could come in handy.
Once you have a lender in mind, experts suggest always doing a thorough check on the bank’s customer experience from relevant borrowers in your network could help you further.
Note that the key things to determine here are potential hidden charges, flexibility to quickly respond to changes in rates and ease of documentation for the transfer process.
Additionally, Kathuria explains, “it helps if the borrower’s home against which this loan is taken is an ‘APF approved project’ by the target lender.” This accelerates your transfer process.