To boost growth in the lending sector, the RBI slashed its repo rate by 250 bps, between 2019 and 2020, which resulted in a significant reduction in home loan interest rates. Consequently, it prompted existing borrowers to opt for home loan balance transfer so that they can avail the benefits of repo rate cuts.
A home loan balance transfer facility enables borrowers to transfer their unpaid loan amount from one financial institution to another and enjoy the benefit of availing credits at more favourable service terms.
Borrowers can also switch their home loan from one lender to another to avail lower interest rates and reduce their EMI outgo. However, there are several pointers that one must take into consideration to maximise the benefits of loan refinancing –
Timing –
In case of long-term credits like home loans, the interest outgo is higher than the principal component during the initial years. On the other hand, the principal component exceeds the interest amount towards the end of the loan repayment tenure. Thus, one should opt for a home loan balance transfer during the early years of tenure to save a substantial amount on interest repayments.
The difference in interest –
For home loans, the EMIs are spread over 15-20 years. In such a situation, even a slight reduction in rates will enable borrowers to save a significant amount on interest outgo. However, Individuals should carry out a cost-benefit analysis and opt for a balance transfer only when savings on interests exceed the costs involved.
While opting for a home loan balance transfer, borrowers should also consider opting for a financial institution that offers additional features such as top-up loans, pre-approved offers, customised insurance plans and so on.
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