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.

Oh… You should have bought a personal accident plan or a health insurance plan… It’s too late now.

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.

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.