A home loan usually comes with a tenor of up to 20 years. It is a long term obligation and offers a lower rate of interest because of being a secured debt.
However, when you get a home loan approval with a longer tenor, it means repaying higher interest charges. Market conditions also keep fluctuating over the years and impacts home loan interest rates.
Many borrowers want to make the most of it by going for a home loan balance transfer.
A home loan transfer helps you switch your account from your current lender to the one offering a lower rate.
The focus while going for the home loan transfer is mostly to enjoy a lower home loan interest.
But should it be the only concern of a borrower while availing of the home loan transfer facility? It should not.
Do you want to know why? Read on!
Should not be home loan rates be criteria for a loan transfer?
Of course, a lower home loan interest charge should be one of the factors while opting for a home loan transfer. But it should not be the only one.
Yes, a lower rate means your home loan repayment outgo will also reduce. In turn, your housing loan EMIs will also become affordable.
But you need to consider a few more factors than just the lower home loan interest rate charges before the home loan balance transfer.
Consider these factors also before switching your home loan
- Charges associated with the home loan transfer
You need to have an idea that a home loan transfer comes with plenty of charges. Costs such as old loan prepayment charges, processing charges to the current and new lender, legal and other charges should also be considered. If you see your home loan transfer cost is much higher than savings, it is better to avoid it. If you have to pay higher charges than savings, the motive of the home loan transfer gets defeated. In this case, the best thing is to negotiate with your current lender for a lower rate.
- The tenor
Switching your housing loan account is beneficial only if the tenor of the loan is longer. If it is a longer tenor, you can go for it. It is because you will be able to save on interest charges. If you are already repaying your home loan for a small duration, you should avoid opting for the home loan transfer. It is because you are already saving on interest costs owing to a reduced tenor.
- The timing of your transfer
You should not go for the home loan transfer during the later part of the tenor. It is because you may have already repaid a large part of interest-based EMIs. If you want to switch the home loan, you should do that during the initial tenor.
- Do you have some other financial needs to cover?
If you have a home loan and are looking to apply for a personal loan to cover your different needs, you can opt for a home loan transfer. It is because most lenders may offer you a top-up loan. A top up loan comes with a large amount at a lower rate and a longer tenor. You are free to use the loan money without the restriction of your lender.
If you understood the discussed factors, you might have realized that switching your home loan only for interest reduction is a bad idea. You can also use the home loan transfer calculator to estimate your savings on your lender’s site for free.