Home loan balance transfer is an increasingly popular option among borrowers who want to reduce their monthly payments or avail better interest rates. The process involves transferring your outstanding loan amount from your current lender to a new lender who offers better terms and conditions. However, while the idea of a home loan balance transfer may seem enticing, it is not without its hurdles. In this blog, we will discuss the top 5 hurdles of home loan balance transfer that you need to be aware of.
The first hurdle that you need to overcome is the eligibility criteria set by the new lender. Home loan balance transfer is not a straightforward process, and the new lender will scrutinize your financials thoroughly before approving your application. The eligibility criteria may vary from lender to lender, but some of the common factors that they consider are your credit score, repayment history, and income. If you do not meet the eligibility criteria of the new lender, your application may get rejected, and you will have to continue paying the higher EMIs.
Another hurdle that you need to be aware of is the prepayment charges levied by your current lender. When you transfer your home loan balance to a new lender, you need to prepay the outstanding loan amount to the current lender. However, most lenders charge a prepayment penalty, which can range from 1% to 5% of the outstanding loan amount. This penalty can significantly reduce the benefits of the balance transfer, and you need to factor it in while considering the transfer.
Apart from the prepayment penalty, you also need to pay a processing fee to the new lender. This fee can range from 0.5% to 1% of the loan amount and can add up to a significant amount. While some lenders may waive the processing fee as part of their promotional offers, you need to verify if the waiver is for a limited period or for the entire loan tenure. It is also advisable to negotiate with the new lender for a lower processing fee to reduce the burden on your finances.
The documentation required for a home loan balance transfer is similar to that of a new home loan application. You need to submit various documents, such as identity proof, address proof, income proof, property papers, and NOC from the current lender. However, the documentation process can be time-consuming and cumbersome, and any delay in submitting the documents can delay the approval process. You also need to ensure that the documents are accurate and complete, as any discrepancy can result in the rejection of your application.
Time is taken for approval
The final hurdle that you need to overcome is the time taken for approval. Home loan balance transfer is not an instant process, and it can take anywhere from 2 to 4 weeks for the new lender to approve your application. During this period, you need to continue paying the EMIs to the current lender, which can be a strain on your finances. You also need to be prepared for the possibility of the new lender rejecting your application, which can result in wasted effort and loss of time.
In conclusion, a home loan balance transfer is an attractive option for borrowers who want to reduce their financial burden or avail better interest rates. However, it is not without its hurdles, and you need to be aware of them before considering the transfer. The eligibility criteria, prepayment charges, processing fees, documentation, and time is taken for approval are the top 5 hurdles that you need to overcome. By understanding these hurdles and planning accordingly, you can make an informed decision and ensure that the home loan balance transfer works in your favor.