As a borrower when you decided to transfer balance outstanding of your home loan from existing bank or NBFC to new bank or NBFC, due to lower rate of interest offered by new bank or NBFC or you want some additional loan amount (top-up loan) due to increase in the market value of the property is called balance transfer of home loan.
What are the benefits of balance transfer of home loan?Saving In Home Loan EMI: The major benefit of transferring your existing home loan is saving in your EMI. Rate of interest has a great impact on your home loan EMI. EMI calculation depends upon three factors i.e. (i) Loan Amount (ii) Rate of Interest (iii) Loan Tenure.
If rate of interest is low, then your EMI is also low and this will give you great saving. Let us understand this by an example:- Supposed Mr. Ram has borrowed a loan of Rs. 50 lacs @ 10% rate of interest for 30 years from “EXISITING BANK” and current rate of interest offered by “NEW BANK” is 8.50%, then what would be impact of ROI on his EMI and saving?
| Bank | Loan Amount | Loan Tenure | ROI per Annum | EMI | Yearly Saving | Total Saving in 30 Years |
|---|---|---|---|---|---|---|
| Existing | 5,000,000.00 | 360 Months | 10.00% | 43,879.00 | ||
| New | 5,000,000.00 | 360 Months | 8.50% | 38,446.00 | 65,196.00 | 1,955,880.00 |
The above example shows that reduction in rate of interest would save Rs. 19.55 lacs in 30 years.
So, if rate of interest offered by other bank or NBFC is lower than your existing home loan rate of interest you must transfer your home loan to other bank.
If rate of interest on home loan offered by other bank or NBFC is lower than your existing lender, it will help you to close your home loan earlier than existing loan term. As you will pay EMI for lesser period so this will also save interest on loan because EMI consists both principal and interest portion.
Let us understand this by an example:- Supposed Mr. Ram has borrowed a loan of Rs. 50 lacs @ 10% rate of interest for 30 years from “EXISITING BANK” and current rate of interest offered by “NEW BANK” is 8.50%, then what would be impact of change in rate of interest on loan tenure and saving in interest if EMI remains same?
| Bank | Loan Amount | ROI | EMI | Loan Tenure | Total EMI Paid | Interest Saving |
|---|---|---|---|---|---|---|
| Existing | 5,000,000.00 | 10.00% | 43,879.00 | 360 Months | 15,796,440.00 | |
| New | 5,000,000.00 | 8.50% | 43,879.00 | 233 Months | 10,223,807.00 | 5,572,633.00 |
The above example shows that if EMI remains same then loan tenure reduced from 360 months (30 years) to 233 months (19 years 5 months), so you will be free from your home loan liability 10 years 7 month before, and this will save interest of Rs. 55.72 lacs approx also.
Instead of taking personal loan to fulfill your dream or some personal requirement you can take balance transfer of home loan plus top up from new bank or NBFC. The rate of interest offer on top up loan is same as home loan. As the home loan rate of interest is cheaper than personal loan so you would be able to save a lot of money on interest payment.
Top up loan provided by bank or NBFC based on your income eligibility and market value of the property. Income eligibility also depends upon rate of interest apart from other factors. If rate of interest is low then loan eligibility increases and if high then loan eligibility decreases.
Basic Loan eligibility criteria for almost all the banks are same. Following are some key important factors which would be checked by bank or NBFC to accept or reject the home loan balance transfer and top up application:
Age: At the time of home loan balance transfer application, applicant must be 21 years or above but not more than 60 or 65 years because repayment of the loan has to be completed on or before 60 or 65 years of borrower age.
Employment Continuity: Bank or NBFC checks employment continuity of an individual who is applying for balance transfer of home loan. An individual should have 3 years of working experience in the business or employment. A regular source of income, ensure the lender regular repayment of their housing loan EMI.
Cibil Score: A loan borrower who is having good cibil score will get quick loan from the bank or NBFC. Cibil score is a decisioning factor for sanctioning or rejecting home loan balance transfer applications.
Pre-Existing Home Loan: To take balance transfer of home loan, borrower must be having a home loan with some other bank or NBFC.
Home Loan EMI Serviced For Specific Period Of Time: Some bank or NBFC may put special condition that balance transfer of home loan would be done only if minimum 6 months or 12 months EMI serviced with the existing bank. However, many times EMI servicing condition waived off by bank or NBFC and balance transfer of home loan happen even if EMI is not serviced for 6 months or 12 months.
“No” Bouncing In Home Loan EMI: New bank or NBFC checks repayment track record of the borrower from bank statement and may ask loan account statement from the borrower. If there is bouncing in the home loan repayment track record then new lender will not do balance transfer. However, if the bouncing in the EMI is not due to insufficient funds but for any other reason, then bank may consider the balance transfer of home loan with proper justification.
Under construction Builder Property Home Loan Balance Transfer and Top Up: If property is under construction then project must be approved with the new bank or NBFC. If project is not approved with new lender then balance transfer of home loan cannot happen.
Even if project is approved and possession is offered by builder but registry not yet happen in favour of borrower then still new bank or NBFC may refuse for balance transfer of home loan.
Documents required for home loan depends upon the type of employment of an individual.
Documents required for different types of employment are as follows:
Balance transfer rate of interest of home loan is based upon marginal cost of lending rate (MCLR) plus margin on the MCLR. Due to stiff competition between the banks and NBFC almost all the lenders offers lowest rate of interest to attract prospective borrowers. Home loan transfer to other bank is aided by India Finserv.
You may take expert advice of India Finserv professional consultants who will help you to choose best bank who offers you lowest rate of interest on home loan with ZERO / nominal bank processing fees.