A home loan is a long-term loan with a tenor of at least five years, till twenty-five years. On average, every home loan has a tenor of at least ten to fifteen years. Thus, one’s association with one’s lender or bank is also at least as long as the home loan tenor. However, in case a borrower is dissatisfied with their lender’s service and/or the home loan interest offered to them, they would, in all probability, be scouting for other lenders in the market to transfer their loan. This is what is called a home loan balance transfer. It is a way of transferring one’s ongoing home loan (the balance part) from an existing lender to a new one given that one has paid off their EMIs for at least 12 months with their current lender. 

                 Why does a borrower need to transfer their home loan to a new lender? Let’s find out:

  1. A much higher interest rate is being charged by the existing lender than what is being offered by a potential one: Usually, this is the topmost reason for wanting to transfer a home loan. In this case, a home loan balance transfer leads to a lot of money saved in the long run. Since there is a limit to home loan tax benefits in India, the lowering of interest rates also helps the borrower ease their EMI burden. 
  2. Below par service at the existing lender: This can encompass issues, such as unfriendly and/or indifferent staff, delayed TATs, confusing policies, and so on.
  3. Superior banking facilities and policies at the new lender like no foreclosure penalties, comprehensive and comprehensible policies, customer-friendly systems, less complicated paperwork, faster issue resolution, etc. 
  4. An offering of a bigger top-up loan sum by the new lender
  5. An unchanged CIBIL score provided one has repaid the EMIs till now on time, in full, as also any other outstanding dues on the credit card, other EMIs, etc. 
  6. Little to no additional fees for the home loan balance transfer, in the guise of the processing fee, transfer fee, service fee, and so on.
  7. The expiry of the lock-in period with the existing lender, who has proven to be less than optimally beneficial to one’s funds.

Now that we know the impetus behind the transfer, let us get to know the eligibility criteria for it:

  1. Present income levels, past data of income over time, and income projections for the remainder of the home loan balance tenor. The higher the income, the higher is the eligibility.
  2. Credit/CIBIL score, which is determined by one’s debt and repayment history. A score of at least 700 is recommended.
  3. Diversification in investments—potential borrowers with their funds in stable and less risky assets like PPF, FDs, government bonds, debt funds, have higher eligibility than those in equity (especially small-cap). 
  4. Age, occupation, and life stage of the borrower—a younger borrower is usually offered a lower home loan interest rate provided they are fine on all other factors. Also, people with MNC or Government jobs are considered more eligible. Also, factors like the number of dependents, borrower’s education level, presence of any other earning member impact the overall eligibility. 
  5. The potential market value of the property in concern and the reputation of its builders affect one’s eligibility for a home loan balance transfer. 

Next, let us know the process of undertaking a home loan balance transfer:

  1. Document proofs, such as PAN, Aadhar, multiple consecutive and most recent IT returns, recent salary slips or income proof (for the self-employed), educational certificates, passport, voter’s card, etc., are almost mandatorily asked for.
  2. The new lender also requests specific data points from the existing lender, as mentioned below, in the new lender’s company letterhead: 
  • An NOC and a declaration disclosing the names of all the property-related documents which the existing lender holds on behalf of the borrower and which specifies the home loan balance amount and the current interest rate
  • Proof of on-time payments of EMIs by the borrower (from the lender and/or the borrower)
  1. With the above information, one can apply for a home loan balance transfer with a new bank/lender, which will then go into processing. Post the due diligence, the request is approved within a few weeks. 

A few necessary points to be borne in mind for a home loan balance transfer:

  1. Be aware of the trending home loan interest rate in India basis the quarterly monetary policy announced by the RBI. All home loan rates are benchmarked to this.
  2. Read the fine print in your existing loan document before applying for a balance transfer to know about conditions and limitations which might adversely impact your balance transfer. Also, read the fine print on the new agreement with the new lender before signing on it. 

This second time around, be better informed when it comes to a home loan balance transfer. 

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