If you are in the mid or end of your loan tenure, transferring your home loan might not be financially beneficial for you. Transferring your loan in the later years means you would have already paid the higher interest part to your current lender.
Amidst this pandemic, a large number of people have been struggling to keep up with paying their dues, premiums, loan repayments, especially long-tenure loans like home loans. Home loans are long term loans that go up to 30 years and borrowers spend a large amount of money in servicing it. During the loan tenure, the borrower pays more than 50 per cent of the home loan EMI component as the loan interest amount to the bank.
The current SBI interest rates on home loans range from 7.40 per cent to 7.75 per cent (ER) for loans up to 30 lakhs, and 7.65 per cent to 8 per cent (ER) for loans above 30 lakh and up to 75 lakhs. If you think you are paying high interest and EMI for your current home loan to your lender, there is a way out for you. Borrowers can consider transferring their home loan from their existing lender to another bank.
On getting a home loan transferred, the new lender pays the due loan balance to the previous lender in full, and the borrower starts paying the EMIs to the new lender. According to experts, one should get their home loan transferred only if they are in the initial 4-5 years of the loan. This is because the interest component is higher in the initial years. If you are in the mid or end of your loan tenure, transferring your home loan might not be financially beneficial for you. Transferring your loan in the later years means you would have already paid the higher interest part to your current lender. Therefore, before opting for the balance transfer option do a thorough analysis. As the extent of savings in a balance transfer generally depends on the difference in interest rates, charges of switching loan, outstanding amount, and the tenure left.
Things to consider before opting for a home loan transfer:
1. If taken from a bank home loans are based on MCLR (Marginal Cost of based Lending Rate). On the other hand, housing finance companies, and NBFCs (non-banking finance companies) do not follow MCLR as their loans are based on market standards and their competition. Hence, before making a switch compare the difference in these rates.
2. Only if you are paying is higher than current market rates, you should consider switching your home loan. Find out when transferring your loan that your EMI is getting lowered. Usually, home loan interest rates are revised every year, at the end of completing a year.
3. While opting for a loan transfer know that your credit rating also matters. A loan transfer is like taking a new loan to pay off an existing one. Hence, if a borrower’s credit rate has reduced since the time, he/she first took their initial loan, it could affect their chances of being qualified to get a loan transfer.
4. Only switch your home loan if you have just started with your home loan or are in the initial few years. If you are closer to the end of your tenure do not opt for this option. Additionally, note that, if you are planning to sell the house in the near future, do not opt for a loan transfer.
5. There are banks who charge prepayment or foreclosure fees, hence, check that with your bank before opting for a transfer. Consider additional charges like a penalty, or any foreclosure charges that your existing bank can charge you. After considering such expenses calculate if the expense of a transfer is worth making the loan transfer.
6. Take note of the waiting period. Usually, the process of transferring a home loan takes 15 to 20 days, however, it could shorter if you are moving from base rate to MCLR within the same bank.