Interest rates have decreased from 11.25% in 2012 to a low of 8.20% now in 2017. So, doing a home loan balance transfer at the new interest rate can save one a lot of money in interest paid. Here is a step by step guide on how to transfer your home loan balance and get the best possible interest rate on your home loan transfer.
Understand your needs
It is important to understand your needs and what you want to accomplish by refinancing the home loan. The biggest reason usually is lowering your interest rate but refinancing can also help you achieve your goals. You can extend the tenure of the loan, reduce your EMIs/monthly payments, reduce the tenure and pay off the loan quicker, move it to a bank of your choice where you have other relationships, take a top up loan if you need cash etc. So identifying your needs helps to find the best deal and get the most out of it.
Check your CIBIL Report
Check your CIBIL score to understand the different . A bad credit score will hurt your chances of getting approved for a new loan. So if the credit score is bad, it is better to wait until it improves to apply for a refinance. Also verify the data in the report and ensure that there are no delinquencies. Rectify any discrepancies in the report by raising a dispute with the credit bureaus.
Home Loan Balance Transfer Charges
Lower interest rates are very enticing but you also need to factor in all the fees and charges that the banks levy. Some of the key ones to watch out for are
- Processing Fee : The bank that extends the new loan charges a processing fee to process the loan. This can go upto 1% of the outstanding depending on the loan and the credit profile of the borrower. Banks are aggressively seeking home loans from credit worthy borrowers and tend to waive off the processing fee completely for good customers.
- Stamp duty : This is paid to the government to register the loan. The state government determines it and it varies between 0.1% to 0.5%. You can check the rate in your state here.
- Pre-closure fee : This is charged by your current bank to close the loan. This is usually chargeable for fixed rate loans. There is no pre-closure fee for floating rate loans according to RBI guidelines.
Compare home loan balance transfer offers
You should do some shopping around to find the best offers on home loans. Even a 0.05% in interest will make a difference in the long term. Also factor in all the associated costs before deciding on an offer. Banks might entice you with low rates but have a lot of hidden fees. Check online for various bank offers to understand what interest they are lending at.
Paperwork & application: Home Loan Transfer
Once you have identified the offer, get your paperwork ready and apply for the refinance.
You will typically need
- KYC documents (Aadhaar, PAN)
- Income Proof (Salary slips, Bank Statements)
- Address proof
- List of Documents from the current lender
Once you submit these along with the processing fees and stamp duty, the loan gets processed. After all the paperwork, the bank writes a cheque to your current bank. You need to hand this cheque at your current bank to close the loan, get your property documents and then handover them to the new lender.