When and Why to Transfer Your Home Loan?

Homeownership is a big step and for many people it involves buying their first home by taking out a home loan. Fortunately, situations change and one day, you may find yourself in a position where it is a smart financial move to transfer of home loan to a new bank. In this blog, we will cover the details behind home loan transfers, and help to understand their process alongside the factors to think about.

What Is a Home Loan Transfer?

A balance transfer or home loan transfer is the ability to transfer your existing home loan from one financial institution to another. This is usually offered to borrowers so that they can choose this when they find a lender offering better terms like lower interest rates, better services, and flexible repayment facilities. However, transferring your home loan can result in a reduction of financial burden in the long run.

Why You Should Make Use of a Home Loan Transfer Option?

The common reasons why borrowers choose to transfer their home loans are mentioned below.

Lower Interest Rates

Transferring a home loan because you want to lock in a lower interest rate is one of the most compelling reasons to do so. This means, even a very small reduction in interest rates could end up saving you with interest over the tenure of the loan.

Improved Loan Terms

It means that a new lender is offering better loan terms, less fees, freedom to repay, or better customer service.

Top-Up Loan Option

Many lenders offer a top-up loan option. It can help in financing for additional expenses such as renovations, or to help consolidate other debts.

Dissatisfaction with the current lender

It might be that your current lender does a poor job of customer service or has rigid loan terms that push you to research better options.

Home Loan Transfer Process

There are a few very important steps in the home loan process. Here’s how it usually works.

Evaluate Your Current Loan

Check on the interest rate, tenure left, and what are the consequences if you foreclose or prepay the loan

Research and Compare Lenders

Begin your search by identifying lenders providing fairly good rates, as well as terms comfortable to you. You can use online tools or ask for the help of financial advisors to compare your options.

Submit an Application

Once you’ve decided on a good lender, apply for the transfer of balance. To help do this you will need a loan statement, property details and proof of income.

Approval from the New Lender

A new lender will examine your credit, and the value of your property before agreeing to the transfer of the loan. A fresh credit assessment and property appraisal may be part of this process.

Closure of Existing Loan

Once approved, then the new lender will pay out the outstanding loan amount that your current lender owed to you, meaning that your previous loan is closed.

The cost associated with a Home Loan Transfer 

While a home loan transfer can lead to savings, it’s important to consider the associated costs that may come in between your loan transfer process.

Processing Fees: A processing fee is most likely going to come out of your pocket and, while some lenders charge less than 1 per cent, others will ask for up to 2 per cent.

Prepayment Charges: Some top lenders penalize if the bank forecloses the existing loan before the tenure is over. Most home loans with floating interest rates, however, avoid prepayment penalties.

Administrative Fees: However, some additional charges may include document verification or legal fees.

Secondary Benefits: Enhancing Home Financing

A home loan transfer is primarily intended to trim costs but it can also help simplify your home financing strategy. For example, if you like lenders to offer top up loans, which can be used towards expenses such as home improvements and apparently unrelated costs, choosing this route would be helpful.

Conclusion

Transfer of home loan can be beneficial for optimizing your finances which is something that should be carefully considered. But by knowing and evaluating your options, you can make an educated decision regarding it on the basis of your financial goals.