Given the prolonged tenure of home loan repayment and EMIs often taking the lion’s share of one’s monthly income, a borrower is naturally tempted to take the home loan balance transfer route. However, don’t jump the gun! Like every other financial decision, there are pros and cons in opting for a balance transfer. In this article, we will discuss when to not opt for home loan balance transfer as well as the key considerations.
A home loan balance transfer is when a new lender transfers the existing outstanding loan amount of a borrower into their own loan books at a lower interest rate, by charging a one-time processing fee.
The following are some of the situations when this should be avoided:
1. Interest rates are going through the roof:
The main rationale behind opting for a balance transfer is to avail the benefit of low home loan interest rates. This would translate into lower EMI burden and reduction in the loan tenure. Thus, it is better to wait till the interest rates drop, before one decides to jump ship.
2. Track record of customer service:
Often, one’s existing lender is willing to accommodate the borrower’s request to lower the interest rate and renegotiate the loan agreement, based on the borrower’s rapport with the lender. In such a case, it is best to stick to one’s existing lender than shop for better options as one would have to carry out the entire loan process again.
3. Add-on benefits:
Many times, one’s existing lender extends additional top-up loan. This can be utilized towards interior decoration, car parking expense or renovation of house property. In such a scenario, it is prudent to avail the further loan amount sanctioned and not change one’s lender.
Now that we know when it is best to continue with one’s existing lender
Let’s understand factors that explain why it makes poor financial sense to move to a new lender.
1. Loan tenure:
In case one is almost near the maturity date of the home loan, it is prudent to settle and close the loan with the existing lender. A loan balance transfer is advised in the initial period of the home loan, when the interest component is higher in the EMIs, as compared to the principal. Thus, there is no economic sense in approaching a new lender for a loan that is near its closure date.
2. Short term window of lower rates:
One must check whether the lower rates being offered by a new lender are teaser rates. If that is the case, then one is walking into a trap! Teaser rates are artificially lower rates for a short term to attract new borrowers. After the period is over, the lender would again hike up the interest rates. Thus, one might be charged the same rate as the previous lender or end up paying a higher EMI.
3. Charge of a one-time fee:
Often new lenders would charge a one-time processing fee equal to 0.5-1% of the loan amount to transfer the outstanding loan. If one is unwilling to bear this cost, it is best to drop the idea of loan transfer.
4. Interest matters:
Lastly and most importantly, one must read the fine print and compute the exact EMI amount payable in case of a balance transfer. Often the rate of interest as a percent might look attractive on paper, but, the EMI amount might burn a hole in your pocket! After all, every rupee counts!
In conclusion, lenders often market a loan balance transfer as a winning deal, whereby the borrower could be locked into a lower rate of interest. However, think twice before you act! In the above situations, a home loan balance transfer might not be so rosy, after all.
With Finserv MARKETS, applying for a Bajaj Finserv home loan balance transfer facility is easy, quick and completely hassle-free. What’s more? You get a plethora of other advantages like customized offers, top-up options and many more. So why wait? Head over to our website and apply for a home loan balance transfer facility with us, today!
Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!