What is Home Loan Balance Transfer?

What is Home Loan Balance Transfer?

You have shortlisted your dream home. You have availed a home loan from a reputed bank, which was easily sanctioned. For several months you made payments regularly on your home loan. All was good. Soon you would be the owner of your own dream house.

Suddenly bad times struck without warning. You were riding your bike when a car coming from the wrong side hit you, without any warning. After a long hospitalization, your pockets were empty.

Home loan is a loan sanctioned by banks and housing finance Companies, which enables borrowers to purchase, construct, reconstruct and repair a house. Most houses in urban areas are now bought by availing a home loan. All thanks to inflation, it is almost impossible to buy a house without availing home loans.

Interest rates on home loans vary across lenders. It depends on the REPO rate, reverse REPO rate, statutory liquidity ratio SLR, marginal cost of funds based lending ratio MCLR, cash reserve ratio CRR and benchmark prime lending ratio, BPLR. Other lenders might be offering home loans at a lower interest rate than your current lender. This tempts you to make a switch. Transfer of home loan from one lender to another is called home loan balance transfer.

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You have fallen behind in your home loan repayments and are struggling to repay your home loan. How would you get out of this quagmire? This is when your friend suggests the home loan balance transfer.

What is home loan balance transfer?

You avail a home loan from your bank. Your bank charges you a very high rate of interest. You struggle to make your repayments. This is when you find another bank, which charges a lesser rate of interest on home loans. Home loan balance transfer involves, transferring the entire unpaid principal amount on your home loan, from your bank to this new bank, which charges you a lesser rate of interest. The bank to which you have transferred your home loan then pays your bank the balance principal amount. Your home loan is settled. You now have to repay the new bank (bank to which your home loan has been transferred). This bank charges you a lower rate of interest, which makes paying the EMI’s very easy.

see Also: Protect Your Family From Liability Of Home Loan

How can you do home loan balance transfer?

You will have to submit a letter to your bank, requesting a balance transfer on the home loan. Your bank will then give you a NOC (No Objection Certificate), saying it has no problem with the home loan balance transfer and mentions your outstanding pending principal amount.

You provide this letter to the new lender (bank to which you want to transfer your home loan). The bank to which you have transferred your home loan, then pays your bank, the balance principal amount on the home loan. Your property documents are then handed over to the new bank. The new bank will offer an interest rate on the home loan, which is same as that offered to their new home loan applicants. Your bank would charge a prepayment penalty on the home loan if you do a balance transfer. However, all banks have waived off prepayment penalty on floating rate home loans. You will have to pay a processing fee to the new lender (bank to whom you have transferred your home loan).You can negotiate with this lender (your new bank), to waive off the processing fee.

Can you always avail a home loan balance transfer?

Switching your home loan from your bank to a new bank (home loan balance transfer), is not always successful. Your new lender (bank), will check certain factors, before sanctioning you a home loan balance transfer.

The new bank will check if you have been prompt in your repayments, with your earlier bank. If you have delayed or defaulted on the home loan EMI’s with your previous bank, you would find getting a home loan balance transfer, nearly impossible. You also need to note, that if your home loan is for an under construction apartment and the construction is behind schedule, you will not be able to balance transfer your home loan.

Home loan balance transfer, is a highly popular method to save interest on home loans, in Western Countries. Time for you to do the same.

Key Features of Home Loan Balance Transfer

• You can transfer the outstanding home loan balance to another lender.
• Borrowers must pay processing fee to the new lender which is roughly around 1% of the outstanding loan.
• Home loan balance transfer application is treated on par with a fresh home loan application.
• The home loan balance cannot be transferred until a particular time period which is predetermined at the time of availing the fresh home loan.
• When the home loan balance transfer is made, the borrowers must make all repayments to the new lender.

Eligibility Criteria for Home Loan Balance Transfer

Any salaried or self-employed with an outstanding home loan balance which has been regularly repaid are eligible for home loan balance transfer. Eligibility criteria for home loan balance transfer vary across lenders. Below mentioned are the general eligibility criteria for home loan balance transfer:

• The applicant must be an Indian citizen.
• The applicant must be at least 21 year old and under 60 years.
• The applicant must have a good credit score.
• Should have a regular income either by salary or business.
• The house must be constructed as per the local municipal authority guidelines.

Documents Required for Home Loan Balance Transfer

Applications for home loan balance transfer are treated exactly the same way a fresh home loan application is treated. Hence, while applying for home loan balance transfer, you have to produce the same set of documents that you produced to the current lender along with a few additional documents. These documents are then verified by the new lender, and your loan will be approved only if your documents are found legitimate. Following are the general documents required to avail home loan balance transfer:

• Duly filled application form along with a latest photograph.
• Loan account statement from the current lender.
• Last three months' payslips with break-up of net salary that is the basic pay, house rent and gross take home salary after all the applicable deductions.
• Latest six months bank statement, reflecting your salary credits updated within 15 days before the loan application.
• PAN card is mandatorily required to avail any kind of financial product.
• Identity Proof (Any One): Pan Card, Valid Passport, Valid Driving License, Voter's ID card, employee identity card (as identity proof and signature proof in case of government employees).
• Proof of address: Ration Card, Electricity Bill, Water Bill, Gas Connection Bill, Telephone Bill
• Proof of Age (Any One): 10^th marks card, 12^th Marks Card, PAN Card and Voters ID Card.
• If you are self-employed professional or businessperson, then you must provide documents supporting the existence of your business like company registration certificate.
• Account statement of the bank account from which the EMIs were paid to your current lender.
• Complete set of property documents that is currently in the possession of your current home loan lender.

Benefits of Home Loan Balance Transfer

The most important benefit of a home loan balance transfer is that you save a considerable amount of money. The difference in interest rates between your current lender and new lender is what makes you opt for a home loan balance transfer.

There is absolutely no point if you are paying higher interest when there are other lenders offering interest at a much lower rate. Make sure you end up paying lower with the new lender or else there is no need to transfer the home loan. Following are the benefits of home loan balance transfer:

• Brings down the EMI.
• Reduces the total amount of money to be paid as interest on the home loan.
• A person must consider opting for a balance transfer to avail attractive discounts and benefits offered by the new lender.

Banks offering Home Loan Transfers

Below table shows the top lenders with their interest rates offering home loan transfer option:

Bank	Home Loan Transfer Rates
SBI	8.70% onwards
HDFC	8.80% onwards
ICICI	8.85% onwards
Axis	8.95% onwards
PNB Housing Finance	9.00% onwards
LIC Housing Finance	8.70% onwards
Indiabulls Housing Finance	8.80% onwards
DHFL	8.70% onwards
Yes Bank	9.35% onwards
Citibank	9.25% onwards

FAQS
Q. Will a prepayment penalty affect my refinance?

A. Most banks these days don’t have prepayment penalties. If current lender charges prepayment penalties, then you can ask your new lender to take that also into account. Whether the lenders charge penalties or not, depends on a case-to-case basis.

Q. Should I transfer my home loan if the current rate of interest does not dip significantly?

A. You need to remember that home loan interest rates are not constant and vary. You also must consider that the new lender charges processing fees. You must account for all other charges involved, behind transferring your home loan. If you spend lesser amount in transferring your home loan balance than continuing with the same lender, then you may consider transferring home loan balance. Opt for home loan balance transfer early in tenure and not towards the end.

Q. How much time will a bank take to transfer my loan?

A. The new lender completely verifies all your documents before making a decision to offer home loan balance transfer. The lenders treats home loan balance transfer applications on par with a fresh application. Hence it might take up to a month to approve your home loan balance transfer request.

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