Home Loan Balance Transfer & Top-Up

Whenever there is an increase in the repo rate of RBI, the loan of the bank also becomes expensive. In such a situation, the EMI burden increases which affects the budget of the common man’s house. Recently, RBI has increased the repo rate for the fifth time. According to economic analysts, this process has not stopped yet, that is, the repo rate may increase again in the coming times and due to that loans may become costlier. In such a situation, the biggest impact is on the home loan borrowers because it is a long term loan. If you have also taken a loan from the bank and the financial budget of the house has gone awry due to the increasing EMI of the home loan, then here are the measures that can prove helpful for you.

Subas Tiwari

Home Loan Balance Transfer allows you to transfer your outstanding loan from other loan institutions to another Banks/NBFCs at a lower interest rate, this helps in reducing your EMI. Home loan balance transfer or refinancing or simple balance transfer is a process by which you can take advantage of lower interest rate offered by other Banks/NBFCs on existing loans.

How to transfer your home loan?

Taking a home loan makes the process of buying your home easy, but you can also find a home loan that has low interest rates and other value added services. In such a situation, you can transfer your home loan to the lender providing better services. This process of switching or transferring your home loan from one lender to another is called home loan balance transfer.

When should you opt for home loan balance transfer?

Usually, you shift your home loan balance to another lender when you feel the rules of your current lender are unfavourable and are not ready to negotiate. However, you can have many reasons for transfer, but the main reason for balance transfer is high interest rate. This may be due to the presence of many other reasons such as stringent rules, a lot of extra charges and poor customer service.

It is best to transfer home loan balance in the initial years of your term. This is because initially the share of interest in each EMI is much higher than the principal. So, this is the time when you can get the most benefit by falling interest rates. Also, remember that for transferring the balance you may have to pay a fee to the new lender and pay the processing fee again. So, keep these numbers in mind, understand your total benefit and decide accordingly. This guarantees that your balance transfer will actually help you in saving.

How does home loan balance transfer benefit you?

  • It reduces the burden associated with your repayment, which allows you to pay the loan in a short time.
  • Your new lender can provide additional benefits such as easy pre-payment and foreclosure at no extra charge. This makes repayment easier.
  • It provides you better customer service.
  • Your new lender can provide you with many additional features like top-up loans, which you can use for many things. For example, to decorate your house.

Home Loan Balance Transfer – Eligibility Conditions

Any employed, self-employed professional or self-employed businessman can apply for home loan balance transfer. Although all the lenders have different eligibility conditions, some similar conditions are as follows:

  • Applicant should be Indian and age between 21 to 60 years. Whereas, self-employed persons are eligible for transfer till the age of 65 years.
  • Your credit rating is not only good during the loan application, but the rating should not be low till the time of transfer, otherwise banks can reject your application.
  • Applicant has been working in one company for some years or in case of self-employment, the applicant’s business has been going on for some years. This period is usually 2 years.
  • You must have the ability to pay every month or the minimum salary required.
  • Some banks may also require an applicant’s minimum family income.

Knowing the advantages of a house loan balance transfer, let’s now examine the bank or NBFC’s procedure for carrying it out.

Submit an application to your current lender

When you are ready for balance transfer, then it is important to inform your lender through the application. There will be a letter or form in this application. In both cases, prepare your application carefully and describe the reasons for the transfer. If it is a form, make sure that you fill it in correctly.

Take NOC or MoU

After completing the initial formalities, your lender will contact you to give you a Consent Letter or No-Objection Certificate (NOC). This document is very important, because when you give your application, then your new lender will ask you for this document.

Assign Your Document

When you have received the NOC, you can contact your new lender and hand over all your documents to him. Apart from submitting the required documents like NOC and KYC, you may also have to submit a copy of your property document, loan balance statement and interest statement and filled application form.

Get Confirmation from Old Lender

After submitting all your documents to the new lender, wait for the final confirmation from your old lender regarding the closure of your loan account. This proves that the loan contract has expired as per the terms of the loan contract.

Pay the applicable full fees and start afresh

Now, all you have to do is sign the contract with the new lender and pay the outstanding fees. Once this is complete, you can repay the EMI for the next month. This complete guide can help you easily transfer the balance of your home loan to the lender of your choice. After this, you will be able to take benefits like the affordability and flexibility offered by your new lender.

What is the step-by-step procedure for taking a home loan?

Approval of home loan involves several stages. However, these are completed quickly, after which the loan is disbursed in a few days.

To avail a home loan, the following steps are to be followed –

Step 1. Applications

The first step is to fill the application form with some details like name, phone number, PIN code, employment type, etc. The Bank / NBFC representative will contact you to further the application process.

Step 2. Assemble the document

Bank / NBFC representative will come to your house to take the necessary documents for home loan, these documents are

  • Documents of property to be mortgaged.
  • Identity proof – Aadhaar, PAN, Voter ID, Passport, Driving License, etc.
  • Address proof – latest utility bill, any identity proof with your permanent address, etc.
  • Latest salary slip or Form 16.
  • Bank account statement.
  • Evidence of business presence.

Step 3. Document Processing and Verification

The lender will process and authenticate your document. They can contact your office or related organization to confirm your employment or business.

In this phase, they will check your CIBIL score and credit report.

Your loan application will move to the next stage only when all the documents are in order, and your CIBIL score and credit report are satisfactory.

Step 4. Approval Letter

After completing the above steps, you will receive an acceptance letter. The acceptance letter usually includes the following information –

  • Loan amount
  • Interest rate
  • Interest Rate Type – Fixed or Variable
  • Repayment period

The acceptance letter may also include other terms, conditions and policies of your loan. To accept their offer, you have to sign a copy of this letter and give it to your lender.

Step 5. Payment of security fees

After signing the acceptance letter, you will have to pay a one-time security fee. The lender may ask you to pay this fee in advance.

Step 6. Checking legal and technical information

The lender will check the legal and technical information before disbursing the loan. They will also send their representative to inspect the house.

Step 7. Loan Agreement and Disbursal

You will receive the original agreement letter, after thorough investigation from the lender. Finally, the company will disburse your home loan as per the terms.

Interest rate-how are they fixed by Banks/NBFCs?

What is MCLR?

RBI governs the lending rates in India for financial transactions by financial institutions. Earlier, RBI used to follow a system known as BASE RATE in which RBI would decide the Base Rate & all FIs would follow that rate as the Minimum Lending Rate (MLR).

Since April 2016, RBI has changed the system to fix Base Rate to Marginal Cost (of funds based) Lending Rate (MCLR). There are set guidelines in RBI for revising this rate every month based on several factors including borrowing rates & the REPO rate.

FLOATING RATE OF INTEREST: This is the lending rate charged to a loan borrower that is based on MCLR. Any change in MCLR will automatically affect the floating rate (increase or decrease). But the borrower enjoying a floating rate will not usually feel because when MCLR goes up, the tenure also goes up & vice versa. So when there is no change in the floating rate, the EMI stays fixed as it was though there would be a change in the floating rate which will affect/benefit the borrower in the rate of interest charged on his loan account.

In case the borrower wants the benefit of reduced EMI consequent to a reduction in the floating ROI, he needs to approach his Bank/NBFC to avail the benefit in which case the tenure of the loan (remaining period of loan) goes up accordingly.

FIXED RATE: This is the lending rate which is charged to a borrower that stays fixed irrespective of change in MCLR. NBFCs do not usually encourage from Fixed Rate to Floating Rate but encourage vice versa.

PRIME LENDING RATE: While it is mandatory to pass on the benefits under the MLR system (followed by banks), the same is not true under the Prime Lending Rate system followed by NBFCs. Under the PLR system, when RBI effects changes in MCLR, the PLR rate is kept unaffected as the NBFCs absorb the marginal increase. When MCLR is reduced, the PLR is kept intact & the benefit, if any, is passed on to the borrower on payment of additional Process fees after a written request is made for the same. This is true of each decrease in PLR. So NBFCs are free to set their PLR of their choice. 

It is left to the prospective borrower to negotiate the interest rate deftly with the Bank/ NBFC to obtain the best rate for himself.

Meet the need of money by taking Top-Up on Home Loan

When most of us suddenly need money, personal loan is the easiest route. The reason for this is because the banks give loans in a short time. But, there are many cheaper options available in the market as compared to personal loans. For taking a loan at a cheaper interest, you can approach a top-up or gold loan on a home loan. If you have taken a home loan, you can easily talk to the bank and top-up it on that loan. The interest rates of top up loans are slightly higher than home loans but much lower than personal loans.

What is the Top-Up Home Loan?

This mainly allows one to avail a loan amount on a home loan. Banks offer this loan to customers already taking home loans, given their financial standing. However, top-up facility can be availed only after 6 to 12 months of taking home loan.

So it’s better than a personal loan

Top-up loans can be used for any purpose. If you renovate the house, you will also get the benefit of income tax. Top-up loans can also be used for children’s education, daughter’s wedding or for purchasing additional properties. This loan is taken in addition to the existing home loan, so along with the payment of the home loan, the monthly instalments of the top up loan have to be paid.

Determination of loan amount

Banks generally offer 65 to 70 percent of the property’s current value (including home loans) as top-up loans. For this, the banks get the property appraised. The maximum amount of a top-up loan depends on the individual lenders. The more the home loan is paid, the more top-up loan you get.

Key features and benefits of top-up loans

It is available at a low rate of interest: This loan is available at a low rate of interest, due to which it is economical and easy to pay. You can avail a higher amount with a small adjustment in your EMI. 

It has a longer tenure: On a top-up loan, you can enjoy the same long-term convenience as a home loan. This reduces the value of EMI, making it easier to repay further. 

It provides quick money: The eligibility criteria for this loan is normal and its disbursal is also easy to process. This ensures that you can apply to get the money whenever you need it. 

It does not require a separate application: When you take a top-up loan, you do not need a separate request. This application process is simple and fast. 

It provides tax benefits: Interest paid on top-up loans is tax free under Section 24 of the Income Tax Act. To take advantage of this, you have to prove that the top up loan will be used to buy, build, improve or renovate the residential property. If you use the loan amount for the education of your children, you can still avail this rebate. 

Here are some ways in which you can use top up loan:

  • Home renovation and expansion
  • Buying furniture for your home
  • Upgrading soft furnishing and home appliances
  • Structural changes and repairs
  • Fixing plumbing or wiring

How to quickly apply for a Home Loan Top-Up?

Complete loan eligibility: When you take this loan, you also get an offer for home loan balance transfer. Generally, lenders review your previous payment history and total home loan amount before accepting your previous payment history. The amount of top-up loan also depends case by case. If the value of your property is high, then Banks/NBFCs gives top-up loan which is more than the amount of your home loan.

Fill the application form: To apply for this loan, you can choose between online and offline medium. It is easy to apply online and you have to submit a basic form which you can fill in minutes. However, it is important to enter your details correctly for easy processing. 

You may have to submit a copy of the original KYC document and your property paper. Before applying, you should get the information about the documents required for the home loan, which you will have to submit as soon as possible so that the approval for the loan can be obtained quickly. After this, Banks/NBFCs will review your application and will disburse the amount directly in your account. With this information, you can easily apply for a top-up loan and make full use of it.

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