Key things to consider before transferring your home loan

By CNBCTV18.com IST (Released)

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Looking to opt for a home loan balance transfer in a high interest rate scheme? Here are the key things to know:

With Friday’s repo rate hike and the previous two increases, overall lending rates jumped at least 190 basis points, or 1.9%. In this regime of high rates, it is normal for mortgage borrowers to worry. At this point, experts suggest that existing borrowers explore the possibility of saving on interest charges through the transfer of the home loan balance.

Also known as refinancing, this is the process of transferring outstanding loan balances to a new lender.

So, how does the transfer or refinancing of a mortgage take place?

Customers can ask a new lender to settle dues with the existing lender and take over the outstanding loan amount. After choosing a lender, customers can complete the documentation and repay the loan to the previous lender and take back the outstanding loan amount.

After that, the EMIs must be paid to the new lender.

Who to contact for the transfer of a mortgage?

Existing home loan borrowers who have seen substantial improvements in their credit profile by taking advantage of their home loan should explore the possibility of saving on interest charges through home loan balance transfer. Their improved credit profile can make them eligible for home loans at much lower rates from other lenders, said Naveen Kukreja, CEO and co-founder of Paisabazaar.

Lower interest rates mean lower equivalent monthly payments (EMI). This means more money in hands at the end of the month.

With floating interest rates offered by most banks, which are linked to the repo rate set by RBI, experts say customers should find home loans with lower interest rates than what they are currently paying with another NBFC bank.

Here is a table showing the increase in EMI on Rs 30 lakh home loan (with different rate increase scenarios):

(Source: Bankbazaar)

What are the factors to consider before opting for a mortgage transfer?

Consider related expenses

When considering a loan transfer, it is essential to consider the expenses associated with it. Home loan balance transfers typically incur a 1% processing fee, payable to the new bank. Importantly, this may dwarf the savings the borrower could realize if they transferred the loan, depending on the amount of the loan, warned Adhil Shetty, CEO of Bankbazaar.

Additionally, there may be legal fees, appraisal fees, stamp duties, and other fees associated with the loan. As a general rule, all costs associated with a new loan also apply to refinancing.

“Therefore, it is best to calculate the exact change in cash outflows before borrowers refinance their loans. As a general rule, the difference should be at least 0.5% from the existing rate for post-processing and other costs of good savings”. Shetty said.

Negotiate well

Shetty said borrowers should negotiate with their lenders for better rates before opting to refinance, as it may prove cheaper and more convenient.

Here are the latest rates offered by banks on home loans:

Banks Starting interest rate (pa)
National Bank of India 7.55%
Citibank 6.65%
Union Bank of India 7.40%
Bank of Baroda 7.45%
central bank of india 7.20%
Bank of India 7.30%
Axis Bank 7.60%
Canara Bank 7.60%

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