In May 2014, the Reserve Bank of India released a circular which stated that banks and lenders operating in the lending space should consider allowing borrowers to make prepayments without paying any penalty. After the RBI released this circular, a unanimous decision was taken which declared that individuals repaying a Home Loan on floating interest rates can prepay or even foreclose their loan at any point in their Home Loan journey without paying any penalty.
Borrowers on fixed interest rates are however still required to pay a prepayment and foreclosure penalty. This option of being able to prepay or foreclose one’s loan without facing repercussions led to people exploring the possibility of Home Loan Balance Transfers.
Home Loan Balance Transfer refers to the process of transferring the remaining balance on one’s Home Loan to another lender. When you choose to Balance Transfer Home Loan, you essentially decide to close your loan account with your current lender and get your loan refinanced by another lender.
In the majority of cases, Home Loan borrowers choose to transfer the remaining balance on their Home Loan to another lender for a lower rate of interest. By shifting to a lower rate of interest, Home Loan borrowers can reduce their monthly EMIs, thereby leaving them with more funds to spend at the end of each month.
Further, when one switches to a lower rate of interest, one also gets the chance to reduce the total cost of borrowing the loan and save more on one’s total interest outgo. Thus, a Home Loan Balance Transfer can prove to be highly beneficial. However, it proves beneficial only when opted for at the right time and this is where a Home Loan Balance Transfer Calculator comes in handy.
What is a Home Loan Balance Transfer Calculator?
A Home Loan Balance Transfer Calculator is an online tool that lets borrowers calculate the total amount they will save on the interest payout on their loan by switching to a lower interest rate loan through a Home Loan Balance Transfer.
This online tool also allows borrowers to calculate the top-up loan amount they are eligible for in case they decide to avail themselves of a top-up loan while Balance Transferring their loan.
Here are the steps to use a Home Loan Balance Transfer Calculator:
- From the first drop-down menu, select your lender. For instance, if you have availed yourself of a loan from Bajaj Housing Finance, select Bajaj Housing Finance from the first drop-down menu.
- Next, select the city in which your property is located.
- Next, move the bar to select the total sanctioned loan amount. You can also directly input the value in the box provided.
- After this, enter the remaining loan tenor.
- Next, enter the current rate of interest or the Home Loan interest rate at which you are currently repaying your loan, followed by the rate of interest you are being offered by your new lender.
As soon as these details go into the Home Loan Balance Transfer Calculator, the calculator will tell you the total amount you will save by opting for a Home Loan Balance Transfer.
Most people do not know that Home Loan Balance Transfers involve a fee. While your current lender won’t charge you a fee if you are on floating interest rates, your new lender will treat your request for a Home Loan Balance Transfer as a new Home Loan application and therefore, charge a Home Loan Balance Transfer fee.
If the Home Loan Balance Transfer fee is much higher than the money you will save by opting for a Balance Transfer, you should not avail of the facility and instead, request your current lender to switch you to a lower rate of interest.
However, if the savings facilitated by the Balance Transfer are much higher than the Home Loan Balance Transfer, you should go ahead with your decision to transfer your Home Loan. As a general rule, a Home Loan Balance Transfer makes sense when the difference in the current and new interest rates is at least 25 bps if the remaining tenor is 20 years and at least 50 bps if the remaining tenor is 10 years.s
Individuals planning to go for a Balance Transfer must also make sure they meet their new lender’s Home Loan eligibility criteria. Not doing so can lead to the applicant’s application getting rejected. Further, before applying for a Balance Transfer, applicants must obtain a Home Loan NOC from their current lender.
