Since the last quarter of 2020, financial institutions have steadily slashed home loan interest rates. It is expected that this lower interest regime would continue to stay amid Covid-19. Therefore, if you are servicing a home loan at a higher interest rate, you can consider transferring your outstanding loan amount to a different lender offering a comparatively lower rate. This will not only reduce your loan EMI but also help save a substantial amount on your loan.
A home loan balance transfer can be even more helpful if there has been a considerable improvement in your credit score, monthly income, and repayment capacity since the time you availed your existing housing loan. This is because while switching your lender, you will be eligible for an even more attractive interest rate.
Nowadays, with reputed lenders, it’s possible to avail home loans at a low interest rate. As per Ambuj Chandna, President-Consumer Assets, Kotak Mahindra Bank, this is a good time for home loan borrowers who are paying a higher interest rate to earn considerable savings on their total interest outgo by opting for a lower-priced loan via balance transfer, especially for those borrowers who have a longer loan tenure left to be repaid.
The higher the loan amount, the more would be the savings. The table below shows how a balance transfer will reduce your EMIs and help save a large amount of money.
| Loan Amount (Rs.) | Existing EMI (Rs.) | EMI at a rate of 6.65% per annum (Rs.) | EMI savings per month (Rs.) | Tenure (years) | Total savings (Rs.) |
| 50 lakhs | 41, 822 | 37,722 | 4,100 | 20 | 9,84,118 |
| 1 crore | 83,644 | 75,443 | 8,201 | 20 | 19,68,235 |
| 2 crores | 1,67,288 | 1,50,886 | 16,402 | 20 | 39,36,470 |
Apart from a low interest rate, a home loan balance transfer can also help you avail a loan with more favourable terms. However, if you have already completed a major portion of your loan tenure, opting for a balance transfer wouldn’t be a wise decision. This is because while switching your lender, you may have to pay the balance transfer processing fee and other charges. These charges can offset the amount saved on the interest outgo. Thus, before opting for a loan balance transfer, you must calculate the total amount you would save on the interest pay-out by using a home loan balance transfer calculator.
If your repayment capacity allows, you must try to close your loan at the earliest by increasing your monthly instalments. This will not only make you debt-free sooner but also bring down the overall cost of borrowing. However, make sure that your EMIs are always affordable as it will prevent the possibility of a default and allow you to repay the loan without straining your finances.
Lastly, make sure to learn about the terms and conditions of housing loan set by the new lender before opting for a balance transfer with it.
