5 Mistakes To Avoid In A Balance Transfer Home Loan

A balance transfer of a home loan can be an effective strategy to reduce the monthly EMI or reduce interest rates. By transferring your existing home loan balance, you can make significant savings during the debt period.

However, transferring a home loan isn't as simple as moving balances between credit cards. Let's look at the five common errors homebuyers often make.

5 Key errors to avoid in a Home Loan Balance Transfer

1. Not considering the terms and conditions

   

   When considering balance transfer, many borrower focuses mainly on low interest rates. Although it can be a great advantage, it is important to evaluate the entire loan package. Do not ignore other factors that may affect the total cost of the loan over time. For example:

   • Processing fees: Some lenders require high processing fees, which can offset savings strongly at a low interest rate.
   • Debt period: A long loan term can reduce your EMI, but can increase the total interest rate paid over time. Make sure the loan period is following the repayment capacity.
   • Hidden fees: Be aware of other hidden fees, such as documentation fees or penalties, which can be imposed by the new lender.
2. Not checking home loan eligibility criteria

   Each lender has a set of different home loan eligibility criteria for a balance transfer home loan. It's important to determine and consider all factors like:

   • Credit score: Just as missing payments on a credit card can impact your credit score, failing to meet repayment terms after a home loan balance transfer can negatively impact your financial standing.
   • Income level and current loan amount: Lenders usually require a stable income, so that you're able to repay the loan. Some lenders may have a maximum cap on the loan amount they're ready to offer for a remaining transfer.
   • Hidden fees: Be aware of other hidden fees, such as documentation fees or penalties, which can be imposed by the new lender.
3. Ignoring the impact of existing loan tenure

   

   A balance transfer can seem like a simple way to save, but avoid the mistake of overlooking additional costs.

   When transferring the mortgage balance, many borrowers accidentally extend the debt period to reduce EMI, thinking it will reduce the load. Although it may look like a smart step, the loan payment period can have unexpected results:

   • Increase in total interest: Long-term loans have higher interest rates, even though the monthly EMI is lower.
   • Future financial pressure: A long-term loan can put pressure on finances, especially if your income fluctuates or your financial preferences change.
4. Underestimating the processing period

   Balance transfer often comes with an approval process that can take more time than expected. The borrower can reduce this time by completing their paperwork and evaluating the loan and funds. However, any delay in this process can give rise to a situation where the lender may still demand interest.

   Ensure you have all the documents ready for the balance transfer home loan process to avoid delays. Keep in mind that it might take a few weeks for the new lender to process the application and disburse the loan.

5. Avoiding the impact on tax benefits

   

   A close-up view of calculating a home loan with an EMI calculator during a balance transfer. Property loans can enjoy tax benefits under section 80C and section 24 (B) of the Income Tax Act. However, many borrowers overlook how a balance transfer can impact their eligibility for tax benefits if not managed properly.

   If the new loan is taken under a separate scheme, the choice for tax profits may vary. If the outstanding debt is the result of a principal or reduction in EMI, the interest rates paid (on which the tax deduction is calculated) can be reduced.

Wrapping Up

A home loan balance transfer can help you minimise your EMI burden and manage your finances more efficiently. By carefully reviewing the terms, using a home loan EMI calculator, and ensuring that the transfer results in real savings, you can optimise the process.

With IIFL Home Loan's Balance Transfer, you get the advantage of lower interest rates, minimal documentation, and a hassle-free transfer process. Whether you want to reduce your EMIs or avail of a top-up loan for additional financial needs, IIFL Home Loan offers a seamless and customer-friendly experience. Visit IIFL Home Loan Balance Transfer to explore your options and make your home loan journey smoother.