Factors To Consider Before Opting For A Home Loan Balance Transfer - Loan Trivia


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Thursday 28 July 2022

Factors To Consider Before Opting For A Home Loan Balance Transfer

Due to reduced policy rates by the Reserve Bank of India, currently, financial institutions are offering home loans at much affordable interest rates. But, if individuals are already under the liability of a housing loan, they can look for institutions providing affordable options to minimise their financial burden. However, before opting for a home loan balance transfer, it is essential to consider several factors.

Factors to consider before opting for a home loan balance transfer

Here are a few of the important factors to check before opting for a balance transfer–

1. Total interest cost

Beneficiaries of a home loan generally opt for a transfer of balance to lower the overall interest cost if they have availed a loan with a considerably higher rate of interest. So, individuals with improved credit reports can opt for a home loan balance transfer, but it is crucial to calculate certain liabilities before that.

As a balance transfer is similar to a new home loan application, lenders levy processing fees, administrative charges, and other charges. Hence, if an individual can save on interest after the total calculation, opting for a home loan balance transfer will be an intelligent choice.

2. Residual tenor of existing housing loan

Opting for a home loan balance transfer in the latter part of a loan tenor might not be a smart choice. This is because when a financial institute calculates the EMI, the initial payments consist of maximum interest amounts, whereas the latter EMIs consist primarily of principal. Hence, towards the end of the tenor, an individual has already paid the maximum interest. Opting for a balance transfer during the end of the loan term might not be fruitful here.

Existing customers can negotiate with their lenders regarding the applicable interest rates. This is one of the best ways to lower the financial burden on the interest rate. As a home loan balance transfer is considered a new application, it includes multiple factors like property evaluation and loan application evaluation. Thus, renegotiating interest rates with existing lenders might be helpful.

However, to reduce the interest rate, new home loan borrowers consider several factors. The list of factors that can slash the interest rate is given below.

Read Also: Steps to Follow for a Peaceful Home Loan Balance Transfer

Factors to reduce the home loan interest rate

The factors in reducing the rate of interest include–

1. Credit score

Most lenders usually prefer a high credit score of 750 or above before disbursing a home loan. This also signifies a disciplined repayment history and an applicant's creditworthiness. Thus, an applicant with a high credit score is less likely to default on the EMIs. Such applicants may avail a lower rate of interest on their home loans.

2. Location of property

A property's location is also a significant factor determining the interest rate. A home in a prime location with all amenities can fetch a higher price, and in case of any credit defaulting, lenders can get the loan amount back easily. But, a property in a rural or isolated location is likely to fetch a lower price. Hence, lenders mainly offer a lower interest rate for properties at prime locations.

3. Policy rates

As mentioned earlier, policy rates are the important deciding factors for the interest rate, and they are directly related to the interest rate. Apart from it, knowing the MCLR rates before availing of a home loan is also beneficial.

Besides, consider knowing at least 4 top tips to decrease the home loan interest.

Selected financers also extend pre-approved offers that simplify and expedite loan processing. Such offers are available on a range of financial products like loans against property, home loan, etc. You can enter your name and contact number to check your pre-approved loan offer.

Thus, before opting for a home loan balance transfer, it is essential to consider all the above-mentioned factors.

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