Balance Transfer: Home loans are very popular nowadays. Many banks and financial institutions offer these loans to a variety of customers, who dream of obtaining economic aid to buy a home. Typically, home loans last for a larger tenure of period and are offered at lower interests under secured loan category. However, some people really find it difficult to manage the EMI’s at monthly basis with their fixed income. Some customers may want to change the tenure for the repayment of their loans. Thus, balance transfer is regarded as a solution for all these problems. But, it is necessary to consider whether such balance transfer is good option for your home loan or not. Before going to the details about this issue, we would first go for the definition and meaning of balance transfer.
What is meant by Balance Transfer?
Balance transfer can be defined as shifting your home loan to another bank. It also meant as taking a lump sum amount from another to financial institution to pay the money taken from first lender. However, commonly the balance transfer indicates the first meaning. The method is quite popular in financial world, where it is used to avoid higher interest rates or larger period of loans.
Reasons behind Balance Transfer in Home Loans
The causes and motives behind the balance transfer in home loans differ from person to person. Some common reasons can be stated as:
- Many people opt for balance transfer in an attempt to lower the existing interest rate and decrease the amount payable.
- Some persons may go for this option to decrease the period of repayment and finish up the loans earlier than expected.
- The top-up amount can be used as money to satisfy other needs. This is also one of the reasons behind balance transfer.
- Some people prefer to go for shifting of loan because of the service issues with first lender.
For Example: Lets assume you had taken a loan of 50 lakh at 11.5%, EMI of Rs.53321.48 pm. After 3 years balance loan amount is Rs.47.68 lakh & other bank offers you 10.4% interest on balance transfer. so check how much you can save.
EMI – P.M
Total amount with Interest
After 3 years your Balance loan amount is Rs. RS. 4,768,974 , And new bank offers you 10.4% on balance transfer
|Rs.4,768,974||17 years||Rs.49915.53||Rs.10182768.12||Rs.3405.95 per EMI|
Save on EMI: Rs. 3405.95 (Rs.53321.48 – Rs.49915.53) on every EMI.
Rs. 1688530 is the interest amount which you had paid to the first bank in first 3 years of the loan. We added this amount (Rs.1688530) in the last under Total amount with Interest (Rs.10182768.12 + Rs.1688530 = Rs.11871298)
Total Savings: Rs.12797155.2 – Rs.11871298 = Rs.9,25,857.1
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Things to Check before Balance Transfer in Home Loans
It is very important to do the groundwork before you opt for any kind of balance transfer. You must check whether you are going to have benefits of the process with your loan amount or not. Following is the checklist which may help you to prepare for such transfer:
- Rate of interest with the new lender: You must calculate the new rate of interest in detail and compare it with the older one before making any move for shifting.
- Prepayment charges: Many banks impose prepayment charges on the customers for cancelling the deal well before time. Such charges are not accountable if the lump sum amount is paid from the borrower’s pocket. So, the customers who are paying the previous loan by obtaining money from new lender may not have to pay these fees.
- Other fees and penalties: New bank or financial institution may levy some processing ad administration fees on the customers, which are not shown in the package. Therefore, it is important to check all the details in advance.
- Future changes in bank policy: though your first bank is not offering privileges and lower interest rates, there may be changes in banking policy in future which may be missed by you due to balance transfer. So, it is necessary to check future predictions by economists.
In such a way, balance transfer can be a good option to lower your burden in some cases. The decision have to be made with the help of study and observation of the market.