Internal Home Loan Balance Transfer

With the current fluctuation and competitive market all the Banks/ NBFC’s try to acquire and retain new and existing customers with the best available market interest rates. After borrowing and successfully running a home loan for few years, we at times look for better alternatives to reduce the EMI or interest rates or other terms and conditions. When home loan applicants look for other alternatives to opt for low interest rates prevalent in the market, this is called Balance Transfer of Home Loan. An existing borrower may ask the Bank/ NBFC to lower the present interest rates and the lender denies, the borrower may move to a new lender who is ready to charge low interest rates against the present home loan. But Internal Balance transfer is different.

There may be a situation or an emergency when you have to sell your property (the property against which you took the home loan) to generate funds. The new buyer of the same property also wants to borrow the home loan from your lender. This is called Internal Balance Transfer of Home Loans. The following points will help you to know more about the sanctioning norms of the internal balance transfer of home loans.

Pre-conditions of internal balance transfer of home loans

• The existing lender will require a request letter from the existing home loan customer that states that the borrower wants to foreclose the loan in lieu of selling the property.
• A duly filled application form has to be submitted by the buyer of the property (now the new home loan applicant) along with the processing fees.
• Internal home loan balance transfer is not only the transfer of the property but also the existing home loan from the existing home loan borrower to the new one.
• It is compulsory to provide a NOC (No Objection Certificate) from the developer or the authority.
• The newly sanctioned loan account will proceed and the existing loan account will get closed.
• The pre-payment charges may be charged from the seller of the property if the home loan is charged with floating rate of interest (depending on the terms and conditions).
• The remaining amount or the selling price of the property is disbursed to the new buyer’s account, depending on the case.

How this happens

• It is important to understand that even the Bank/ NBFC is same, the loan account holders (borrowers) are different.
• The first owner or the home loan borrower has to settle the loan account first and then only the property can be sold to another person.
• The Bank/ NBFC may insist on you to close the previous loan account before starting the new one.
• For the new buyer, borrowing from the same Bank/ NBFC will always be a good idea where the seller had mortgaged the property because the lender will be the first one to evaluate the new borrower’s financial eligibility.
• Buying a pre-owned property has another benefit of being verified from the lender’s side. The credit appraisal will take lesser time because of the verified documents.
• An outstanding letter along with list of property papers (also known as list of documents – LOD) will be issued by the Bank/ NBFC for pre-closing the loan.
• This LOD and other property related papers will then be given to the new buyer.
• The buyer (new home loan borrower) will submit the property documents, the KYC’s income proofs and the processing fees to move ahead with the borrowing process.
• The home loan eligibility of the new borrower will be assessed by the Bank/ NBFC and the loan will be sanctioned.
• The outstanding home loan amount will be disbursed in the favor of the seller.

Is Technical and Legal Verification Important?

Yes, it is important. Legal verification is done because the the property will be owned by the new owner. The ownership is transferred from one hand to another, so the marketability and the viability of the property papers become mandatory for the Bank/ NBFC. The technical verification is done to verify the market value of the property. The lender has to stick to the Loan-to-Value (LTV) ratio norms even for the new borrower.

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