Home loan interest rates are a significant factor while choosing a lender. Most people tend to pick lenders that charge affordable interest rates. However, you might find your existing home loan costly over time and may want to shift to a new lender. While this can be a good option and help you save a lot of money, it should only be done after a careful assessment of certain aspects.
Here are five tips to consider while balance transferring your home loan:
1. Pay attention to the time of the transfer
The EMIs you pay towards your loan is divided into two components. One is the interest rate, and the other is the principal amount. During the initial few years of repayment, your EMIs contain a significant interest and a smaller part of the principal amount. However, the interest component gets smaller, and the principal amount increases with time.
If you transfer your loan during the initial years of the tenure, you can benefit from lower interest rates. However, a transfer during a later stage of the tenure may not bring in any real profit.
2. Understand the costs involved in the transfer
Your previous lender can charge processing fees, transfer fees, foreclosure charges, and sometimes even a penalty. Find out what these are, as these costs can impact your finances significantly.
3. Check the credibility of the new lender
Many people use the home loan EMI calculator to calculate the new loan’s interest and go ahead with the transfer. While cost is a major determinant of a home loan, it should not be the only criteria. A new lender in the market may try to lure customers with attractive interest rates but could lack other service benefits. Instead of making a hasty decision solely based on the costs, try to analyze the lender’s overall performance and reputation.
4. Find out the new lender’s charges
Balance transferring your home loan can result in extra costs, such as the switch-over fees. Typically, loan providers charge anywhere between 0.5% and 1% of the total outstanding loan amount. This can come up to a significant amount depending on the value and tenure of your loan. Along with the home loan eligibility of the new lender, make sure also to check the switching fees and other charges (if any).
5. Read the new loan policy carefully
It is crucial to understand the terms and conditions of your new home loan. Pay attention to the fine print so that you do not get stuck with a poor deal.
To sum it up
Balance transferring your home loan can be a viable option in some cases, but it is crucial to assess all factors carefully before you take a call. Do not decide based on home loan interest rates only. Instead, understand the complete repercussions of your decision on your current and future finances.