What is a home loan transfer, and should I try it?

A home loan transfer helps you avail of a lower rate of interest and reduces the EMI burden. This article explains why a housing loan transfer works out well for your finances.

Though most people would like to take a home loan to buy a house, they are afraid of the monthly EMI payments. The EMIs can cut into your monthly income and make it difficult to meet expenses.

However, the EMI may be reduced by taking a lower amount of loan, or by extending the loan’s tenure (thereby increasing the loan’s spread). A third way is to take a home loan transfer to another bank that offers a lower rate of interest.

What is home loan transfer?

A home loan transfer is a process wherein you move your home loan from your existing bank to another one, where the latter offers a lower rate of interest on the overall loan. By getting a lower rate of interest, you can reduce the monthly EMI. Also, the reduced rate of interest brings down the overall money you end up repaying at the end of the loan tenure.

Why take it?

The housing loan transfer is done when another bank or housing finance institution offers a lower rate of interest, but your existing lender does not. Or if your existing lender offers a reduced rate that is still higher than the lowest rate being offered in the market. It is always better to avail of the reduced rate so that your EMI and overall repayment burden is reduced. It helps you save money over the long run, which you can divert towards repayment of the home loan or towards other expenses.

What is the process for housing loan transfer?

  • The home loan transfer is done with the coordination between you, and the two lending institutions – your current bank and the transferee one.
  • You may have already repaid a certain amount of loan amount to your existing lender. The balance is transferred to the new bank, wherein the latter pays the former the balance amount and takes the loan papers from them. From this point on, you deal with the transferee bank at the new rate of interest.
  • There is some amount of paperwork involved in the process, between you and your existing lender, you and the new lender, and between the two lenders themselves.
  • The transferee bank sets a new EMI payment schedule with you, from the succeeding month.

What you should keep in mind before effecting the transfer

  • The transferee bank may take processing charges from you for effecting the home loan transfer. Find out the charges beforehand, and the paperwork involved.
  • The transferee bank may also take pre-EMI money before the actual EMI cycle begins.

If the charges for transferring the home loan from one bank to another outweigh the potential savings, then it is better to not effect the transfer at all.

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