Home Loan Balance Transfer is a scheme where you can change your lender at any time if the new lender provides loan at lower interest rates. It has various implications and if it sets well, can earn you benefits.
Home Loan Balance Transfer: An Overview
In this, the loan lender can be changed after obtaining No Objection Certificate from the lender if one finds better interest offers from other loan providers. You can obtain this benefit anytime in between the EMI period. Home Loan Balance transfer works like a new home loan. After taking NOC and getting approval of the outstanding loan from the new lender, you can transfer all loan to the new loan lender. The old loan provider will destroy your postdated cheques and the new EMI will be lend from your new lending bank.
Suppose you have taken a home loan from Bank X and now after three years you found that another bank Y is offering home loan of the same type with a lower interest rate then you can opt this scheme. Here, after going for this scheme, the outstanding amount will be paid by your new bank Y to your old bank X but you will only have to pay the outstanding amount to bank Y at the new rate proposed.
Implications, Advantages and Disadvantages
While it looks very convenient to opt for different lender depending on interest rates but it isn’t that easy. Before going for this scheme, you need to look at the timing for opting for the new lender. The first few years of EMI interest costs the more. So if you opt for this scheme after those crucial years then it won’t make any sense. Therefore it is necessary to opt this scheme when the EMI interest is the most. Second most important part is that as you opt for the new lender, all the process begins from scrap. You will again need to pay all those taxes, processing fees, registration fees and stamp duties again. So a mere 0.5% interest rate benefit might not be that attractive for you to switch your banker.
Prevailing Home Loan Interest Rates
Home loan interest rates differ from bank to bank. SBI offers home loan at 8.5% interest rate while ICICI offers at 8.4- 8.88%. HDFC is offering at 8.35- 8.60% while PNB offers at 8.60%. The same average is followed by other banks. Processing fees of different banks are different. The average charge is around 8-10K or 0.5% of the total loan. While the stamp duty charge is dependent on the states. Delhi has 3% stamp duty charge plus 5% surcharge by MCD. UP has 8% charge on consideration value while Maharashtra has 10% charge on MV. Haryana has the maximum of stamp duty charge of 12.5%.
Apart from these, you may still have to pay legal fee, evaluation fee, transfer fee and other associated charges. You will also not loose benefits of PM Awas Yojana if obtained already. Banks might waive these fees to curtail competition but it depends on your negotiation skills. It would be advisable for you to only go for this scheme when the interest rate has difference of more than 1% and the EMI period is in nascent stage or else you won’t get much benefit when compared with the amount of efforts you put in.