Home Loan Balance Transfer - Step By Step Guide

If you are currently repaying a home loan, the balance transfer facility is an excellent way to benefit from cheaper loan offerings of another lender. Read this post for a step-by-step guide on the transfer process.

Over the entire term of home loan repayment, a borrower pays lakhs of rupees in interest to the lender. Even a small difference in the interest rate could help one save a lot of money in the process. While we often find new borrowers searching for the cheapest rates to save more on home loan repayments, what about those already servicing a housing loan?

Existing lenders can also benefit from cheaper loan offerings of another lender by switching or transferring their loan balance. Known as the home loan transfer facility, it can help you save a significant amount of money and access better services of another lender even if you are already repaying a home loan.

Here are the steps you can follow for transferring a home loan-

1. Start with a Cost-Benefit Analysis

Before applying for the transfer, it is essential to ensure that you are actually able to save a significant amount of money by switching to another lender. While you might have selected the new lender by closely analyzing the difference in the interest rate, there are other cost-related aspects that deserve your attention. Switching your loan to another lender is similar to taking a new home loan . So, the new lender will also charge a processing fee for the same. Compare your savings with these expenses to ensure that the deal is highly profitable.

In most cases, it is better to use the balance transfer facility in the first few years of the loan when the interest component is higher in your EMI amount.

2. Inform the Current Lender and Collect the NOC

Once you have finalized a new lender and confirmed the cost-benefit, it is time to inform your current lender about your decision to switch to another lender. It is possible that your current lender might negotiate the rate slightly or offer other benefits to make you stay with them. If you’d still like to switch, you’ll be required to submit an application form for the same.

3. Apply for Balance Transfer with the New Lender

After receiving NOC and other documents, you are ready to begin the balance transfer process with the new lender. Submit all of these documents to the new lender, along with KYC documents, to start the approval process.

It is also possible that the new lender might have slightly different eligibility requirements for a home loan. Confirm the same before you initiate the transfer process. Along with the documents, you’ll also be required to submit a duly filled application form and a processing fee cheque.

4. Wait for Confirmation

The new lender will verify your documents with the old lender before approving your application. After verification, the new lender will credit the outstanding balance to your bank account or directly to the account of the older lender. If you receive the loan amount, you can use it to close your loan with the older lender. You are now ready to sign a new home loan agreement with the new lender. Pay the charges, if any, and you’d have successfully transferred your home loan

Should You Use the Home Loan Balance Transfer Facility?

As discussed above, it is generally recommended that borrowers use the balance transfer facility in the first few years of the loan for maximum savings. But if you’ve already repaid the loan for 10-12 years, the savings might not be very significant.

Ensure that you thoroughly compare the terms and conditions of both the lenders and perform a cost-benefit analysis to make the right decision. Some of the lenders also have balance transfer calculators on their websites to help you know the exact amount you can save by switching to the new lender.

Give special attention to all the additional costs you’ll be required to pay to the old and new lenders, as they can consume a significant portion of your savings.