Transfer Home Loan Balance To Other Banks

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Home loan is the most important and the longest tenure loan for any individual in his life. One has to keep paying the home loan EMIs for years. There will be plenty of ups and downs in the rates of interest rates of Home Loans during the period of repayment. Now that the interest rates have been going down for a while, it is very much important that those who have already taken Home Loans should regularly keep a watch on the interest rates to gauge their loan repayment burden.

You have a done a lot of research, took experts opinion to select a Home Loan. But all those might not seem to make sense to you when you are forced to pay more on your loan via EMI because of exuberant interest rates even though other banks are offering lower interest rates on home loan. This is mainly because the situations prevailing when you opted for Home Loan have since been changed drastically. You might have noticed that either there has been continuous reduction or increase in the rate of interest of your home loan / housing loan. Now that the home loan interest rates have been falling regular over last few months, you have two options with you to take advantage of the falling interest rates of home loans:

1. Transferring Home Loan to other banks

2. Bargaining with your bank for a discount in interest rates

1. Transferring Home Loan to other banks: You can transfer your existing Home Loan Principal balance to any other bank having lower interest rates. If you do this, the bank to which you are transferring your home loan balance will treat it as a new home loan. This bank will now pay back your original bank the entire amount you are owed to it. Now that you have become a new home loan customer of this bank, all the EMI and interest rates applicable for new customers will be applicable to you. In short this facility enables you to transfer your existing liability from one bank to another bank taking advantage of the lower interest rates of new bank.

Transfer home loan balance to another bank

How to transfer?

Before you start the process of home loan transfer, you need to complete few steps. First, contact your bank for which you owe the home loan and discuss with them and get a No Objection Certificate (NOC) from that bank. The bank then along with NOC will also give you the full details pertaining to the amount you are owed to it etc. You then need to submit these two documents to the new bank to which you want to transfer your home loan balance. When the new bank grants you the Home Loan, the same will be paid to your previous bank. Your previous bank will then close your loan account associated with them and will transfer all your home loan related documents to the new bank. From now onwards, you need to deposit your EMIs with the new bank.

What’s the need?

Since Home Loan is a long-term liability for any individual, heavy fluctuations in interest rates mean that you need to carry the burden for years. Hence when there is a huge fluctuations in the home loan interest rates, one should think about transferring home loans. But this is not always as easy as it seems. There could be times where this transfer may not be beneficial. Even though you treat this as a transfer of your home loan liability to a new bank, the new bank on its part will only see you as a new home loan account holder with them. This means that the new bank will collect all the expenses like processing fee, legal fee, valuation fee, stamp duty etc. This might add some burden on you. However if you transfer the home loan in the first 1-5 years after taking loan, you can offset some of such expenses. This is because in the initial period of home loan repayment, most of our home loan premium paid would be going towards interest component of your home loan. Such a situation may be ideal for you to think about transferring your home loan to a new bank. But if you have already completed let’s say half of your home loan repayment tenure, the transfer of home loan balance then will not make much sense because you would have to pay a lot of fee and interest to new bank which you had already paid to your previous bank which will overweigh over the benefits.

In short, you may think about transfer when your existing bank doesn’t offer you favourable interest rates for your home loan and that too only during the initial period of Home Loan repayment cycle. However, there will be no or little benefit if the difference between the interest rates of Home Loans between your previous bank and new bank are meagre, as outgo towards various costs will outweigh the benefits. Hence while deciding about the transfer of your home loan, consider the new costs inthe form of transfer cost, processing fee etc., that you need to pay and then decide about the migration.

2. Bargaining with your existing bank:

Bargain with bank for lower interest rate

Sometimes it might be more beneficial for you to bargain for lower interest rates for home loan with your present bank than to proceed with transferring the loan to some other bank. If you have had a good loan repayment history along with good credit score and no disputes with your present bank, then you may request the bank to review your home loan interest rate. The bank may then have two options: either the bank may reduce the EMI monthly payment amount or the bank may reduce the repayment period so that you can complete the home loan repayment early. You can choose either of the above two options and the bank will deduct a nominal fee for offering such a service. This will help you evade the burdens in the form of various expenses that you may have to forgo if you proceed with the home loan balance transfer to a new bank. Thus it is always  important that you contact your present bank holing your home loan for any possibility of lowering interest rate on your home loan. This might be beneficial to you in the long run.

P.S: Home loan can be a great tax saver tool as well. You can claim deduction up to 2,00,000/- on home loan interest and deduction up to 1,50,000/-on your home loan principal (80C) under various sections of the Income Tax Act, 1961.

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