Refinance your home loan

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Thursday, April 16, 2015

Home loan balance transfers (also known as Refinancing or BT) helps the customer avoid high applicable interest rates as listed by one lender and migrate to a lower interest rate structure with another lender. Why pay a higher interest when cheaper options are readily available?

 

Why and when must you avail the Home Loan Balance Transfer option?

  1. If you are paying a higher home loan interest rate with your bank and the other offers a lower interest rate.
  • When you deliberate with your bank to reduce the interest rate on your home loan and they are refuse
  • If you have a track record of 12- 18 months unblemished loan repayments on your current home loan.

Eligibility Criteria for Home Loan Transfer:

When choosing to move your existing home loan to another bank, take care of the following requirements:

  • The applicant’s age must not be lesser than 21 years and not over 60 years at the time of application. The latter is 65 years for Self-Employed individuals.
  • The applicable loan amount is based on a number of factors, including, age of the applicant, current income, number of co-applicants, debt, the applicant’s retirement age, etc.
  • The applicant must have a clear history of 12-18 months worth of unbroken repayments on his/her current home loan.
  • The applicant must have a minimum work experience of 2 years, with the last 1 year spent in the current organization. For self-employed individuals, the expectation is 2 years in the same profession with the filing of the requisite ITR.
  • Additionally, some banks may require a definite gross family income and a clear credit history, minus any red flags and a minimum CIBIL score of 700 points.

Documentation Required for Home Loan Transfer :
 

The following documents re required 

  • Fully completed application form
  • The applicant’s self-attested photographs
  • Identity proof (could be any government issued ID- PAN Card, Voter’s ID etc)
  • Residential address proof
  • Proof of Age (10th or 12th Marks Cards, PAN Card, Voter’s ID etc).
  • Official Address (Applies for self-employed, can be rent agreement, utility bills, lease etc).
  • Income Proof in terms of prior 6 months bank account statements that shows salary credit, last 6 months salary slips and Form-16 accounting for the last 3 years.
  • For Self-Employed individuals, the income proof is established by-
    1. Last 3 years ITR (self and business),
    2. Last 12 months bank account statement (self and business),
    3. Profit and Loss Account,
    4. Balance Sheets that are thoroughly audited by a certified CA,
    5. Complete Business Profile and Proof of Business Existence.
  • Bank statements amounting to last 12 months of the account from wherein the home loan EMIs were deducted.
  • A complete list of documents relating to the property, that is currently in possession of the present home loan lender. Also, the Loan statement copy.

Home Loan Balance Transfer Process - The Do’s and Don’ts!

The process of shifting your home loan from one lender to the next is surprisingly simple and quick. True, you are breaking off a banking relationship with your current home loan lender, however, your new lender is cutting down on the payable interest rate, and generally will be offering additional perks over the loan. Thus, the shifting makes sense. However, do take the following concerns into consideration to avoid a possible bitter taste in the mouth that results from a hasty, ill-timed or ill-planned move-

Credibility: Ensure that the prospective lender is credible and the current slashed interest rate offering isn’t a short term promotional gimmick.

Service Quality: In most cases, bad service negates the good graces earned by a competent product or service. Kindly certify that the new lender isn’t a big disappointment when it comes to customer support.

Estimate Applicable Costs: Spending too much in the process of the home loan balance transfer isn’t a very good idea. Applicable costs include processing fee, stamp duty and other documentation charges. Also, ensure that you are well aware of the inherent numbers and calculations using a good home loan balance transfer calculator. Hail technology!!

Read the Fine Print: This applies on both ends- from your current lender and the exit procedures, as well the new lender and the on-boarding process. Many delays and inconveniences can be avoided by reading through the loan documents and other associated literature, while being aware of conditions like the submission of notice to the current lender, confirming upon the new bank’s eligibility criteria etc. that could potentially cost time.

After the above concerns have been negated, the actual home loan balance transfer process is fairly straightforward-

  • Submit a request to your current home loan lender with regards to a prospective home loan transfer.
  • In response to your request, the bank will issue a No-Objection-Certificate (NOC) and a statement mentioning the outstanding amount.
  • Submit this NOC and account statement to your new lender. The latter will raise measures that ensures the closure of your home loan account with the earlier bank.
  • After both banks are in sync, the associated property documents will be transferred from your old bank to the new bank. All pending ECS or post-dated cheques will be deemed cancelled.
  • In some cases, your current bank may levy a prepayment penalty that amounts to about 2%-5% of the outstanding amount. However, most banks have now abolished this practice and many more are following suit.
  • Voila! Your new home loan profile with the new bank comes with a brand new, and comparatively lower interest rate. Next, smile!

Why waste or wait-out a good thing? With the sky-rocketing cost of living and the ever incrementing inflation rate, small pleasures like the home loan balance transfer are welcomed with open arms. Almost all Indian banks that specialize in home loans do offer the option to transfer existing home loan to another bank. Avail this option, save on home loan interest rates and enjoy the subtle art of financial planning.