Since the Reserve Bank of India (RBI) made the announcement that the repo rate has been increased, there have been nonstop talks over what the next step should be for people who already have housing loans. The rise in interest rates has caused many homeowners to reevaluate their current loans. If you are one of these people, we will explain to you how transferring the amount on your housing loan can save you money and lessen the impact of the recent interest rate increase.

So what does it mean to transfer the amount of a home loan? 

The majority of lenders provide a service known as “home loan balance transfer,” which involves moving your existing outstanding housing loan balance from your current lender to a new lender in order to take advantage of better services or lower interest rates for your 30 Lakh Home Loan EMI or 40 Lakh Home Loan EMI. There could be a variety of reasons for this transfer. 

Let’s have a look at some of the circumstances in which a current borrower on a house loan would want to consider applying for a balance transfer on that loan:

Changing to a rate regime based on the external benchmark

Beginning October 1st 2019, the RBI ordered all banks to implement a new system for determining interest rates based on a chosen external benchmark like repo rate. When compared to the PLR-based rate regime and MCLR mechanism, the external benchmark regime offers more transparency and has a higher capacity for transmitting the advantages of the policy rate to borrowers serving loan EMIs like 40 Lakh Home Loan EMI. Reset dates are set in such a way that banks have to make and transmit the changes at least once every three months, whether it’s an upward or downward movement.

Hence external benchmarks at least ensure the changes are transferred to the customer, which is especially beneficial when there is a rate cut.

Therefore, existing homeowners who are currently making 30 Lakh Home Loan EMI payments on loans from NBFCs or HFCs or even banks with the older regime should consider the possibility of switching to an external rate system. To do so, they should consider transferring their current housing loan to a financial institution that provides such a regime or asks your existing lender to let them switch to it for your existing 40 Lakh Home Loan EMI payment.

Overall cost reductions in interest payments

Borrowers choose to do a balance transfer on their home loans for a variety of reasons, but the most common one is to take advantage of a cheaper interest rate being given by another lender on your existing 30 Lakh Home Loan EMI, which will result in a reduced total amount of interest paid out over the life of the loan. However, before deciding on a new lender based solely on the interest rate that is being provided to you, you should make sure that you take into consideration all of the other fees and costs. When you apply for a balance transfer on an existing home loan, the new lender treats this as a new loan application and, as a result, puts forth a variety of charges and fees, such as a processing fee and administrative charge on your 30 Lakh Home Loan EMI. Therefore, while calculating the entire savings on your interest cost, take into account these charges, and proceed with the transaction only if the overall savings are substantial. In every other case, you should keep repaying the 40 Lakh Home Loan EMI with the lender you already have.

Renegotiation with the current lender was unsuccessful.

If you aren’t happy with your current lender or if your current lender has rejected your request to lower your interest rate or provide better terms of service, you might want to think about switching lenders and going with a home loan balance transfer instead. This is an option you have if your current lender has refused to accept your request to lower your interest rate or provide better terms of service. When you submit an application to transfer your amount to a new lender for your 30 Lakh Home Loan EMI, the new lender will impose its own terms and conditions on the transaction. Utilise this new opportunity to either obtain a higher loan amount (to carry out repairs or additions) or to reset your loan tenure according to your requirements before you finalise the new terms. You can do either of these things by transferring your balance.

Top up loan requirement not met by existing bank/HFC

A top-up loan is an additional loan amount that is issued on top of the amount that is already owed on your existing loan involving 40 Lakh Home Loan EMI. The majority of lenders make this option available to borrowers for a wide variety of reasons, including funding higher education for a kid, home improvements, or covering medical costs. Top-up loans are quite similar to personal loans in that there are typically no restrictions placed on how the money can be used once it has been borrowed. In addition, the interest rates associated with top-up loans are typically lower than those associated with the majority of other types of secured loans and even personal loans. In addition, you may wish to take into consideration the possibility of combining your existing debt using the funds obtained from top-up loans.

Borrowers who already have a house loan, repaying 30 Lakh Home Loan EMI and whose current lenders do not provide top-up loans or who have had their request for a top-up loan denied may, as a result, choose to transfer the balance of their loans in order to satisfy their need for additional money.

In addition, in the event that the amount of the top-up loan that has been approved is insufficient, you may want to think about transferring the balance of your existing home loan to a different lender who can provide you with a sufficient top-up and determine whether or not you are eligible for it.

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