When a person decides to transfer the Home Loan from his current bank to some other bank, the process is called “Balance Transfer”. Under balance transfer, your new lender writes a cheque to your old one after all the important authorizations and due-diligence. Once the cheque is cleared, the property documents are collected and finally your debt liability moves to the new lender.
Note that there are various banks and Non-Banking Financial institutions which are providing the service of Balance Transfer. In order to understand whether switching your Home Loan is favorable in the current situation, we shall first understand how the Home Loan interest rates work.
There are various banks and NBFCs out there and you can save on your Home Loan EMIs by deciding to do a ‘Balance Transfer’ to the right one. There are several factors that you need to consider when it comes to Balance Transfer:
Long term finance: Proper analysis must be done regarding the long-term financial standing. Before you opt for a balance transfer, you need to understand that your existing bank is losing a customer and thus it might place impositions to stop you. Thus you need to be aware of the implications of this before you take your call on it.
Study rate of interests: Before you opt for Balance Transfer you need to study about the prevailing rate of interests in the market. It is essential that you are aware of the rate of interest the banks are offering. Only with a proper knowledge about the rate of interests will you be able to opt for the favorable one.
Processing charges: One important aspect of Home Loan balance transfer to achieve lower Home Loan Interest Rates is that you study about the processing charges and other charges that a bank is charging you. If that amount is high then moving banks won’t make much sense. Let’s jump to the current scenario and see if switching bank is really favorable in today’s time.
Is switching bank really favorable in the current situation?
MCLR has come into play since April 2016. This introduction has brought about a serious change in the working of the rate of interest. MCLR was introduced by the government to promote uniformity and a single system and it has taken over the majority of the market. People who have had their loan sanctioned after April 1, 2016, already fall under MCLR whereas those who sought it earlier can switch from base rate to MCLR. Now how to decide whether switching banks in the current scenario is favorable for one or not? This majorly depends on whether your Home Loan interest rate is floating in nature or fixed.
Moreover, demonetization has caused a massive change and the finance sector which was hit hard by it and is still recovering. Thus the economy is trying to revive itself. Moreover, various plans and policies introduced by the government have brought about drastic changes.
Currently, Home Loans are being offered at a low rate of interest. Banks are offering a 2-year fixed Home Loan at 8.50% for amounts up to 30 lakhs. But over here the rate is fixed. Under a floating one, you can opt to transfer your Home Loan and that would be favorable mainly because of the introduction of MCLR. For instance, 1-year MCLR is 8% and the bank is charging the amount you borrow at 65bps then you are required to pay 8%+0.65% which will make it 8.65%.
Thus honestly there is not a massive difference in the rate of interest. The primary things you need to consider are the rate of interest and bps along with the processing charge on the Balance Transfer Process to make the most out of Home Loan Interest Rates.