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How does a home loan balance transfer work?

  • Highlights

  • Balance transfer lets you transfer your loan to a new lender

  • Home loan balance transfer rules vary from lender to lender

  • Check if a large penalty payment is at stake before you transfer

  • Choose a new lender carefully after due research

Consider this: You’ve recently settled into your own house and have begun making monthly payments toward your loan. While the terms and conditions of your loan seemed feasible at the time, you realise that you aren’t happy with your home loan’s features any longer. You have identified another home loan with a better interest rate and more benefits. So, what do you do?

Luckily, there is a solution for you in the form of a home loan balance transfer.

How does a home loan balance transfer work?

To begin the home loan balance transfer process, there are some specific steps that you must take:
1) You will first need to submit a letter to your existing lender, requesting for a balance transfer.
2) They will issue a letter of consent, a no objection certificate (NOC), a foreclosure letter, a list of property documents (LOD), and a loan statement that shows your EMI payment history.

3) Now, you have to apply to the new lender, and submit all the documents that are needed when applying for a fresh loan.
- First submit the application form, along with your photograph.
- You will also have to submit identity proof, date of birth proof, address proof, and signature proof.
- Next, submit documents that prove the ownership of the property for which you are taking the loan.
- You will also have to submit an NOC from your builder/society, along with the documents procured from the first lender.
- Next, the new financial institution will ask you for proof of income. You will have to show them your salary slips for the last three months and your IT returns/Form 16 for the last two years.
- Furthermore, business continuity proofs like an appointment letter will be required.
- Finally, bank statements for the last three months will also have to be submitted.
4) The new lending institution will verify all documents, look at your financial history, and evaluate your home loan balance transfer eligibility.
5) If the loan is granted, the new lender will hand over a cheque of the balance principal amount to the old lender. The latter will then transfer all your loan papers to the new firm.
6) Finally, post-dated cheques that lie with the old financial institution will be cancelled.
7)The transfer process is then complete.

Tips to Improve Home Loan Eligibility

Charges associated with a home loan balance transfer

Apart from the procedure, familiarise yourself with the charges that you have to pay when opting for a home loan balance transfer:

It is important to check with your bank about their policy regarding a home loan transfer before proceeding. If a large penalty payment is at stake, it might be wiser to stay with your original lender. Along with this, you might also have to pay a processing fee to your new lender.This can be anywhere from 0.5% to 1% of the loan amount that you are applying for.

Each financial institution has its own set of home loan balance transfer rules to take into consideration. It is extremely important to inquire about these rules and determine whether the benefits of transferring your home loan outweigh the drawbacks. Additionally, any financial institution will want to evaluate your credit score, obtain legal verification of your property documents, and complete other procedures. Once these items have been reviewed, your balance transfer will either be approved or denied.

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