India has a growing residential real estate sector. The increasing economy is fuelling a new generation of home buyers who are looking for affordable, good quality residences for themselves and their family. Experts predict a 16% to 17% growth in the real estate market by the end of fiscal year 18-19.
Growing affordability, government-backed incentive programs, and availability of credit in the form of housing loan are the primary reasons behind this exponential growth in the housing sector. Moreover, borrowers also have access to various other features like part pre-payment, foreclosure, online balance transfer etc.
What is a Balance Transfer?
Balance transfer for home loans is a process where a borrower shifts the existing debt from one lender to another. Balance transfer usually happens between 2 different financial institutions, and it is one of the most common and effective methods to reduce current home loan interest rate.
Borrowers often switch when they cannot afford the EMIs of the primary debt. Moving the due to another lender with a lower rate of interest helps borrowers continue the repayments, especially if they have a longer tenor left.
Things to Know About the Balance Transfer Facility
Home loans stay linked to a financial institution’s Marginal Cost of fund based Lending Rate. RBI’s revision of repo rate in June 2018 caused the MCLR to rise, especially for government-backed financial institutions. It has led to a significant increase in the interest rate of housing loans, which has caused many to opt for a home loan balance transfer.
Presently, NBFCs are offering a more affordable rates and borrower-friendly terms on home loans. An individual can follow the below-mentioned pointers before they apply for a balance transfer.
For MCLR Linked Credit –
Some financial institutions offer home loans at higher interest rates post introduction of MCLR. One can apply for a home loan balance transfer in such a situation. Borrowers will only have to pay a one-time processing fee, along with lawyer’s fee (if any) and mortgage charges for the transfer. Despite those added charges, the savings on the interest rates will be significant, particularly if the existing loan tenor is lengthy.
When to Transfer –
Financial institutions usually reset interest rates after every 12 months. Ideally, one should evaluate the decision to go for a transfer when the reset date arrives. An online home loan transfer calculator and a home loan EMI calculator will help the borrower determine when they should go for the takeover.
For Borrowers on BPLR –
Borrowers presently availing loans on Benchmark Prime Lending rates can opt for a home loan takeover by another financial institution offering MCLR. One can avail the best rates, especially with NBFCs.
When to Transfer –
Ideally, borrowers on BPLR should avoid transferring a loan if they are near the end of their repayment tenor.
There are several financial institutions that offer easy-to-avail balance transfer facility. A borrower can use an eligibility calculator to determine whether they can apply for a balance transfer or not.
A Few Things to Consider
MCLR system can fluctuate if RBI decides to increase the repo rate. One should consider current market condition before going for a balance transfer.
Balance transfer for a home loan can be extremely beneficial if a borrower follows the correct regulations and follows the market condition. The availability of availing a top-up loan along with the balance transfer facility makes it more suitable.