Home loan interest rates have never been lower, because of which these loans are currently in high demand. But what about those who have already taken home loans? Do they lose on much better deals that are being offered right now? Of course not! If you have taken a home loan a while back but find a lender offering much better terms in the current market, it is advisable to opt for a home loan balance transfer. By opting for this transfer, the loan would get transferred to the new lender with better terms.
But when is it ideal to refinance a home loan? It is considered best to do so when the new lender is offering a better interest rate and the existing repayment tenure is long. Why? Find out below.
- Lower interest rate
A slight change in the interest rate of a home loan can make a significant difference to its repayment. Understand this by looking at an example:
Nikhil applies for a home loan amount of Rs 1 crore to buy a property in Mumbai. His lender approves the loan application with an interest rate of 8% for a repayment tenure of 20 years. Based on this loan plan, Nikhil’s monthly instalment would be Rs 83,644, which means the total cost of the loan would amount to Rs 2,00,74,562. The total interest paid by Nikhil for his home loan amounts to Rs 1,00,74,562. Now, if Nikhil would have found a lender that offered him the same deal but at 7% interest, his monthly instalment would have come down to Rs 77,530. The total cost of the home loan, in this case, would be Rs 1,86,07,174, with the interest amounting to Rs 86,07,174. With a difference of 1% in the interest rate of the home loan, Nikhil has gone from paying Rs 1,00,74,562 to Rs 86,07,174 in interest. This means that the amount he saves on the interest of his loan is Rs 14,67,388.
After looking at this example, it is advisable to refinance your home loan if the lender is offering a better home loan balance transfer interest rate.
- Longer repayment tenure
It is considered best to opt for a home loan balance transfer only when the repayment tenure of the existing loan plan is long. During the later part of the tenure, the loan is almost repaid in full and the benefits of transferring the home loan might not be much. The primary purpose of this transfer is so that you can save money on the repayment, which might not be possible if the existing tenure is almost up. If the tenure is long, the new interest that will be applied can make a sizable difference to the monthly instalments of the home loan. Make use of a home loan balance transfer EMI calculator to understand the exact amount of your EMIs before going ahead with this transfer.
Before opting for a home loan balance transfer, make sure that the lender is not charging a heavy processing fee, in which case the home loan transfer might not be a good option. Also, inquire about the documents required for home loan balance transfer, as this will make the process of refinancing the loan easier.