Home Loan- Balance Transfer / Topup

Home loan balance transfer option allows you to seek a home loan from a different lender at lower interest rates than your ongoing loan. The new lender approves the loan request as a new loan and pays the outstanding loan amount to the current bank. All future EMIs are paid to the new lender as per the home loan interest rates at the time of seeking the new loan. Effectively with a home loan balance transfer option, you close your older loan and seek a fresh new home loan with a different lender at lower interest rates.

Working overview of home loan balance transfer

A home loan balance transfer is like refinancing your home loan completely. To facilitate a home loan refinance you need to talk to your existing lending bank and seek a no objection certificate for a loan transfer. The bank will give you a No Objection Certificate (NOC) along with details of the outstanding loan amount. On submission of the NOC and outstanding details to the new bank, payment will be made to the older bank if the loan is approved. The older bank will destroy all your post dated cheques, and all new EMI payments are to be made to the new lending bank.

Reasons why you should or should not consider a balance transfer option

Opting for a balance transfer option may appear to be a beneficial move especially if there is a vast difference in interest rates. The move however may not always be a beneficial one. The new bank considers the loan request as a new loan even if you as a borrower may think of it as a loan transfer. As a result the new bank charges , legal fee, valuation fee, other stamp duty and associated charges increasing the cost of the loan.

Ideally a balance transfer option works to the benefit of the borrower only if the loan is in its initial period of 4 to 5 years since the interest component of EMI’s being paid is the highest in the initial years. For loans in mid tenure or nearing the end, a balance transfer option can actually work against the borrower financially since they would have already made the higher interest rate repayment charges to the bank.

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