When we borrow a home loan, we don’t know about the future aspects coming in our way. With the fluctuation in economic market that influence the interest rates and the EMI’s we have to think about the necessary aspects so that these fluctuation doesn’t affect our present financial situations. These fluctuations show us a next path to move – home loan balance transfer.
When the home loan borrowers think of moving to a new lender because of lower interest rates or other beneficial terms and conditions, they think of balance transfer. A balance transfer is all about shifting our existing home loan to a new Bank/ NBFC. It is believed that once in a life of the home loan, every borrower thinks to switch to a new lender.
It is always good to think out of the box and come out of your shell to study the new deals and offers available in the loan market. This will help to know more that suits your present financial need and that fits in your budget.
The foremost benefit of doing a balance transfer is to avail an extra amount as a top-up on your home loan. Let’s learn from Atul Pareek, Director Mudra Home, about top-up loans borrowed while balance transfer on home loans.
Many Banks/ NBFC’s restrict the new tenor to the primary home loan tenor. But yes, there are many lenders who reconsider the balance transfer along with a top-up facility tenor by considering the borrower’s profile, age, credit score and the repayment track of the borrower.
Top-up loan is given for the properties which are ready for possession i.e. where the stage of construction is more than 80% and the registration of home loan is completed in favor of the borrower.
The top-up loan amount can be upto 100% of the primary loan amount which means that the top-up amount can be equal to the amount disbursed by your previous Bank/ NBFC. But, it is also to be noted that the complete amount of the home loan and the top-up should be considered with Loan to Value (LTV) exposure.
An existing loan is transferred to the new lender with a motive to lower the interest rates resulting in lower EMI’s. Balance transfer is done mostly because of the declining home loan interest rates with the changing economic development. The extra amount as a top-up on balance transfer supports with an additional funds for meeting the new upcoming expenses related to property maintenance, repair extension or any other contingencies.
The basic calculations, processes and eligibility parameters are same as a standard home loan. You don’t need to be surprised if the new lender asks for few more reports such as technical valuation report of the property once again to be assured of the LTV. It is compulsory for the balance transfer of home loans to be calculated as per the market value of the property. A clean and clear repayment track for atleast 6 months (terms and conditions may vary from lender to lender) including the broken period interest (in banking terminology it is called Pre- EMI). The new lender will happily take over your home loan and provide additional funds (top-up) if you have paid your previous primary home loan EMI’s on time.
Let’s understand the top-up loan eligibility with the following example:
Avika borrowed a loan of Rs. 50 Lakhs from a Bank in 2008. The current outstanding value of the property is Rs. 45 Lakhs and the present market value of the property is 1 Crores. Avika wants to shift her existing loan account to a new lender for the outstanding amount of home loan with an additional amount of 30 Lakhs. The loan eligibility based on the income is Rs. 70 lakhs.
The eligibility will be calculated as follows:
The maximum amount of top-up loan that can easily be funded by the new lender is 50 Lakhs (100% of the primary loan amount disbursed i.e. 50 lakhs, as mentioned above).
As per the LTV norms, the Bank can fund upto 80 lakhs (80% of the 1 Cr). The top-up loan amount can be upto Rs.55 Lakhs (i.e Rs 80 lakhs minus the outstanding home loan amount, which is 45 lakhs). The top-up loan amount asked for is Rs.30 lakhs.
The loan amount based on income is Rs. 70 lakhs. So, the above example shows that Avika is eligible to avail a top-up loan as the Bank can fund the desired amount of 30 lakhs as a top-up home loan amount based on the income and property valuation.