The primary purpose of opting for a home loan balance transfer is to benefit from a lower interest rate on your home loan. It involves transferring your home loan from your current bank to a new bank that is offering better terms and a lower rate. However, when the difference between your current interest rate and the new interest rate is minimal, the question arises, is transferring the loan even worth it? The answer to this question requires you to consider not just the difference in interest rates but also a few other factors. Here’s what you need to know:
- How far along in your home loan tenure you are matters. It’s important that you consider both the interest rate difference and the amount of loan left to be repaid before you make the decision to opt for a home loan balance transfer.
- If you have already paid most of your loan back and only have a few installments left to go, opting for a home loan balance transfer even if the difference between the rates is attractive won’t make much sense. This is because home loan balance transfers entail a processing fee, which is usually between 0.5% to 1% of your home loan amount. Hence, the money you may save from paying a lower interest rate may be offset by this fee and in the end, the transfer would not really benefit you.
- On the other hand, if, for instance, your home loan tenure is 20 years and you are just 7-8 years into it, even an interest rate difference as minimal as 0.5% would make a significant difference. This is because saving on 0.5% interest for the 12-13 years would add up to a considerable amount of money.
- You need to also check if along with offering you a lower EMI, is the new lender increasing your home loan tenure with it? If that is the case, your outstanding loan amount will increase because the interest will keep getting added for a longer period. In this scenario, your cash outflow may end up being a lot more than what the difference in the interest rates is.
- What you need to look for is a lender that will either reduce your loan EMI with the tenure remaining constant or reduce your loan’s tenure even if the EMI is the same. In such a case, an interest rate difference of less than even one percent will be beneficial.
As you can tell by now, it’s crucial to look at different factors and not solely the new interest rate before deciding to opt for a balance transfer. Consider the processing fees, the tenure, and the EMI payments along with the interest rate to determine if the balance transfer will truly help you save money or not. You can try using a home loan transfer calculator to get an idea of what kind of terms you can get for your home loan from a different bank.