By Naveen Kukreja
The reason for transferring an existing home loan to another lender can vary depending on the specific need of the borrowers. For most, it is the reduction in their total interest cost. For others, it can be lower repayment burden, availability of top-up loans or getting better customer service. Let us look at how these benefits should be evaluated.
Compare the savings in interest cost
Let us assume a home loan borrower has an outstanding amount of Rs 75 lakh at 9.5% interest rate with a residual tenure of 15 years. If he transfers his home loan to another lender at 8.5% for the same tenure, his EMI will reduce from Rs 78,316 to Rs 73,855.
Thus, the borrower will make a monthly savings of Rs 4,461 in his EMI, leading to an overall interest cost savings of Rs 8.03 lakh. Now, if he transfers to a home loan at 9% with other conditions remaining the same, his savings in interest cost would be only Rs 4.04 lakh. Hence, existing borrowers should use online home loan balance transfer (HBLT) calculators available at online financial marketplaces to compare the potential savings from different offers.
Processing fees and other transfer-related costs
Lenders consider home loan balance transfer applications as fresh home loan applications. Thus, the lenders would also charge processing fees, administrative charges and other charges for balance transfer applications. Applicants should factor in these costs while calculating the overall savings in interest cost. They should go for it only if the overall savings are significant enough after factoring in the costs and efforts involved.
Residual tenure of the existing loan
Home loan borrowers pay the bulk of their interest cost during the earlier stages of their loan tenure. This leaves very little scope for interest cost savings on transferring home loans during the later stages of their tenure. Thus, existing borrowers approaching the maturity of their home loan tenure should use HLBT calculators to find the interest cost savings. They should avoid a home loan transfer if the savings are not significant enough to justify the cost and effort involved.
Renegotiating rates with the existing lender
Once an existing home loan borrower applies for balance transfer with another lender, he will again have to go through the various steps and fees associated with any fresh home loan application, such as the property evaluation, loan evaluation, documentation, etc.
As these processes take significant time and effort, they should first contact their existing lenders to renegotiate their existing interest rates and/or other loan terms. They should opt for the home loan balance transfer option if their existing lenders refuse to match the interest rates or other favourable terms offered by other lenders.
The writer is co-founder and CEO, Paisabazaar.
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