In 1991, the then Indian Prime Minister PV Narasimha Rao initiated policies that laid the foundation for India’s growing economic development. Dr Manmohan Singh, the then Finance Minister, working under the old stalwart, liberalized our economy and opened the country to foreign and private investment to accelerate growth. This reform has led to growth in several sectors, with the housing finance industry becoming one of its biggest revelations.
Thanks to legislation, home loans have become more affordable, now more than ever, people are able to get them with interest rates of 8% per annum. As the finance industry has evolved, another concept called home loan balance transfer gaining prominence. In this article, we are going to talk about some of the key details about this novel concept and how it can benefit you.
Home Loan Balance Transfer– What is it?
Home Loan Balance Transfer (HLBT) is a scheme offered by almost all banks and NBFCs in the country, which allows people to transfer their home loan from their current bank to a different lender. Choosing one helps them get the benefit of lower interest rates, as well as better terms and conditions to deal with.
In this section, we will talk about all the benefits of opting for HLBT.
● low interest rates
Let’s face it, when you have a home loan, up to 50% of your monthly income goes towards paying the EMIs on the loan. And if you’re one of those who opted for a loan at least five years ago, chances are you’ve had to struggle Home Loan Interest Rates As high as 10.25% p.a. Considering that most PSUs and privatized banks are now giving loans as low as 8.3% p.a., paying anything more is a waste of resources.
● prepayment option
When a customer pays off a loan they borrowed before the term, the lender often loses out on interest. To balance this, they often levy prepayment fees or penalties. However, these charges are slowly becoming a thing of the past, as most of the banks nowadays are offering options with minimal or no prepayment. As the saying goes, money saved is money earned, any money you don’t pay is good for your savings account.
● low emi
One of the main reasons people migrate their loans is because of high EMIs, which becomes a burden. A properly done balance transfer will reduce your EMI by up to 5%. Now imagine, 5% every month for a tenure of 10 years is a significant amount and can be used for something important in your life.
● Better top-up options:
With better interest rates and easily affordable EMIs, having a home loan balance transfer will also increase your top-up loan amount.
Tips to follow while opting for balance transfer
There are a number of things you may need to follow before you can proceed with HLBT. Here are a few of them:
● Check Tenure
Home loan balance transfer works well for you if you opt for it when you have a lot of years to repay. For example, if you have a loan of 25 years and you have already paid EMIs for more than 20 years, then the hassle of going for HLBT is not worth your while as you can get maximum benefit through this process. will not be able to do. .
● pay attention to the allegations
Before going for home loan balance transfer, you need to pre-close your existing loan, and this will be done through the loan you get from your new lender. Since banks were not as flexible as they are now, you will be charged the highest prepayment penalty which can range from 1.5% to 2.5% of your unpaid principal amount on your loan.
● Calculate how much you can save
The whole point of balance transfer is to help you save money on EMIs. If it doesn’t help you save, there’s no point in going for it in the first place. So, use a Home Loan EMI Calculator And find out how much you’ll be able to save. To do this, you have to pay the total principal and interest, now compare it with the new loan you get and the EMI you will pay.
Also include prepayment charges, if any. Once you have all the numbers, calculate whether your old loan is spent with the new loan.
● Compare Lenders
These days the interest rates on home loans are much cheaper as compared to the last few years. So, before choosing one, make sure to compare different lenders to find the best rates for you. While doing so, take a look at any processing fees they may levy on the loan. A tip for you would be to go for such loans during the festive season, as this is the time when banks will try to attract more customers and hence offer better deals for you.
Overall, home loan balance transfer will help you save money and avail many other benefits. But, you need to be a little careful before choosing it to get the best out of it.
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