The Reserve Bank of India (RBI) kept the interest rate steady at 6.5 per cent in its latest monetary policy meeting on August 8. Interest rates have been trending higher since RBI raised the repo rate by 2.5 per cent between May 2022 and February 2023. Home loan interest rates have been hovering around 9 per cent due to which borrowers have seen a steep rise in EMIs or their tenure being extended. Although the RBI has maintained the repo rate for nearly a year now, experts are of the view that this may be the final pause before rates are reduced. The recent interest rate hikes have made home loans more expensive, leading borrowers to explore ways to lower their debt burden. One strategy that can help achieve that is loan balance transfer. Let’s find out what this is, when should you opt for it and how to decide if it is the right option for you. What is a Home Loan Balance Transfer? A home loan balance transfer is a loan-management strategy wherein the entire outstanding principal amount is transferred to another bank or new lender offering a lower interest rate. This can help reduce monthly EMIs and overall interest, providing borrowers with much-needed financial relief. Benefits of loan balance transfer Lower interest rate: If you have taken a home loan without much research, or had to settle for one with a higher rate due to eligibility issues, a loan balance transfer can help you switch your loan to a lower rate. This can help lower your overall debt burden. Extended loan tenure: A balance transfer can help extend the tenure of your loan, thus lowering your EMI outgo. This can help you manage your loan efficiently. Home loan balance transfer - when is the right time? To decide if a home loan balance transfer will work for you, you need to calculate the difference between the existing home loan and the new one after the balance transfer. If the new loan is significantly lower, you should consider a balance transfer. On the other hand, if you’re nearing the end of your loan tenure or have almost completed the initial loan repayment, including interest payment, with only a small chunk remaining, a balance transfer may not be as helpful. You can find home loan balance transfer calculators online that can help you understand and decide whether to switch. You may also consult a financial expert to understand the process to make an informed decision. Things to Consider When considering a home loan balance transfer, first assess your financial situation. Make sure to compare the terms and conditions being offered by different lenders to decide what’s most suitable for you. Don’t forget to factor in the fees applicable on the home loan balance transfers when deciding on switching your loan. Eligibility is another factor you must consider if you’re looking for a balance transfer. A high credit score and stable income are two of the many factors that can boost your chances of qualifying for a balance transfer. You are likely to be offered favourable rates if your credit score is above 750. If your credit score is low, take steps to improve it by repaying your dues on time and fixing errors in your credit report, before opting for a balance transfer. Should you go for a home loan balance transfer? While the RBI may reduce repo rates in the upcoming monetary policy reviews, some banks are still offering low interest rates to borrowers as an inaugural offer. Most home loans are offered on a floating rate, which is subject to change. However, a fixed-rate home loan that’s cheaper than what your current lender is offering can make the transfer more lucrative. Your current lender may levy pre-payment charges for transferring the loan. These charges should be lower than your interest savings with the new loan for the transfer to be financially beneficial. If you are planning for a loan balance transfer, check out these 10 banks offering the lowest rates. Adhil Shetty, CEO, BankBazaar.com
