Borrowers are feeling the heat as banks and other lenders have been raising interest rates on loans since May 2022.
“Recent borrowers who took out home loans before April would feel the most impact as rates are expected to drop from 6.5-7% to around 8%. For example, if you have already taken a home loan of Rs 30 lakh at 7% for a term of 20 years, your EMI will rise from Rs 23,259 to Rs 25,093, a jump of Rs 1,834, if the interest rate of the home loan climbs 7% to 8%,” says Pranjal Kamra, CEO of Finology Ventures, a fintech start-up.
To mitigate the effect of this rate hike, existing borrowers can use techniques such as balance transfer or prepayment options to reduce their loan burden, Kamra suggests.
Read also :
10 banks offering the cheapest mortgage interest rates.
If you’re having trouble servicing your home loans due to rising interest rates, making a balance transfer to a lender that offers competitive interest rates on home loans might be a good idea. However, it is worth analyzing the pros and cons and calculating the additional savings that result from choosing a home loan balance transfer.
What is a mortgage balance transfer?
Transferring the outstanding balance of a home loan from an existing lender to a new lender is known as a home loan balance transfer. To put it simply, whether you call it change, balance transfer, or just transfer, it is a loan taken over by another lender by repaying the old lender in full, after which the borrower will start paying the monthly installments. equivalent (EMI ) to the new lender. This is mainly done by a borrower to take advantage of lower interest rates or a loan with better terms.
If you’re considering transferring your home loan to another bank, here’s how to do it.
Foreclosure of an existing loan
The first thing you need to do if you want to file for a foreclosure, get an account statement and a list of property documents from your existing lender. If the old lender does not release the ownership documents, the new lender can release payment against a letter from the previous one, having details of the legal documents held by them and the number of days it will take them to release the documents , after the loan settlement.
How to transfer the balance of a mortgage?
These are steps for transferring a home loan balance, according to the website.
Apply to your current lender
Inform your lender that you are seeking a balance transfer via letter or form, carefully listing your reasons.
Retrieve the NO objection certificate
Your lender will respond to you with an AC or consent letter and your new lender will require it when you file your application.
Submit your documents
Contact your new lender and give them all your documents. Apart from submitting essential documents such as NOC and KYC documents, you may also need to submit a copy of your property papers, loan balance and interest statements, along with a completed application form.
Obtain confirmation from the previous lender
After submitting all your documents to your new lender, wait for final confirmation from your old lender regarding the closure of your loan account. This certifies that the loan agreement is complete, as well as the conditions that govern it.
Pay all fees involved and start over
Sign a contract with your new lender and pay the fees due. Once this is complete, you can pay your next month’s EMI to your new lender.
Documents required for the transfer
website, the below documents are required from your current lender:
- List of original documents held at the Bank
- Loan account statement for the last year
- sanction letter
- Interim period warranty
New loan contract
Once sanctioned, a new loan agreement is executed between the borrower and the new lender. The new lender will issue a check in favor of the old lender for the amount outstanding.
Look into the processing fee (which is usually up to 1% of the loan amount). If your credit score, which represents your credit history and creditworthiness, is acceptable or runs a special promotion for a limited time, a lender or the bank may occasionally reduce or waive the processing fee.
When should you consider a mortgage balance transfer?
Home loan borrowers should note that the benefits of transferring a mortgage should outweigh the costs. According to experts, the interest rate differential should be at least 50 basis points between the two lenders if you plan to transfer your balance. Also, consider fees and penalties when looking for a balance transfer.