Home loan balance transfer refers to the process of transferring one’s unpaid principal amount from one’s current lender to another lender willing to offer better terms and conditions on the loan. These days, almost every lender offers this facility. However, one must choose to opt for a home loan balance transfer after a proper cost-benefit analysis.
Lenders charge a home loan balance transfer fee and thus, borrowers must choose to go for home loan refinancing only when the difference in the interest rate is big enough to help the borrower save some money each month even after paying the home loan balance transfer fee. Further, for a home loan balance transfer to prove beneficial, the timing of the transfer must be correct. Further, there must also be a considerable difference in the current and new interest rates.
This article walks its readers through the benefits of a home loan balance transfer. So, read on.
Benefits of a Home Loan Balance Transfer
1. A Home Loan Balance Transfer Can Make Your EMIs Affordable
Often, borrowers opt for a home loan balance transfer when they find another lender willing to offer them a lower rate of interest. Other than a lower interest rate, home loan borrowers also choose to go for a home loan balance transfer when they want to change their loan tenor or interest rate regime or avail of a top-up loan on their current loan.
However, in the majority of cases, the reason why home loan borrowers opt for home loan refinancing is to benefit from a lower rate of interest. When the interest rate goes down, so do the home loan EMIs, which ease the burden of loan repayment.
So, if you are dealing with a financial emergency and are finding it difficult to afford your current EMIs, you can benefit from a home loan balance transfer if a lender is willing to refinance your loan on better loan terms and conditions.
2. You Get a Chance to Build Savings
When you transfer your home loan to another lender that offers you a loan at a much lower rate of interest, your EMIs go down. If you practice financial discipline, you can build your savings and use the saved money to invest in different investment avenues for better returns.
3. You Also Get a Chance to Improve Your Credit Score
One of the key factors that affect your credit score is your repayment history. A clean repayment history helps build an excellent credit score. When home loan borrowers pay their EMIs on time, their credit score improves automatically.
Borrowers opt for a home loan balance transfer to essentially help them reduce their EMIs. In other words, with the help of a home loan balance transfer, borrowers are able to bring their EMIs within the affordable range.
When they do so, they minimize the chances of loan default, which in turn, helps them build their credit score. Having a good credit score is crucial as it makes borrowers eligible for availing of loans on better loan terms and conditions.
4. You Get the Option to Change your Loan Tenor and Interest Rate Regime
Most home loan borrowers opt for a home loan balance transfer to reduce the effective rate of interest on their loans. However, some borrowers also choose to go for a home loan balance transfer as it helps them change their loan tenor or interest rate regime, both of which can work out in a borrower’s favour.
Borrowers who are finding it difficult to repay their loan at their current interest rate can extend their loan tenure. Doing so would help them lower their EMI. Similarly, borrowers can also switch their home loan interest rate regime — they can shift to floating interest rates if they think that home loan interest rates will go down in the near future or shift to fixed interest rates if they are convinced that home loan interest rates will go up in the short term.
5. You Get to Enjoy Better Service
Many home loan borrowers also opt for a home loan balance transfer simply because they are not happy with their current lender’s services. By opting for home loan refinancing, you can transfer your home loan to another lender known for better customer service and having a more customer-centric approach. Since a home loan is a long-term commitment, it is crucial that you choose a home loan partner you trust and get along with well.
A home loan balance transfer can help you make your loan EMIs affordable and ease the burden of loan repayment. However, one must opt for this facility only after careful planning. There is no point in applying for a home loan balance transfer when you have already repaid more than half of your loan or if the remaining tenor is only 5 to 7 years.
A home loan balance transfer proves beneficial when opted for early in one’s loan journey. Borrowers can use a home loan EMI calculator or a home loan balance transfer calculator to understand whether a home loan balance transfer would be the right choice for them at that point in their loan journey.
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