25 OCTOBER, 2021

Sonia and Vivek were watching the news when a headline caught their eye. A leading bank was offering home loans at a much lower rate than what they were currently servicing. Unanimously, they both decided that the first task for the morning would be to apply for a balance transfer. Just then, Sonia’s brother called, asking about their weekend plan. When she told him about their decision, he had something else to say. According to Sonia's brother, a financial advisor, a drop in rates is not the sole reason one should opt for a balance transfer. There are many other things the home loan borrower should consider. He gave the couple a checklist asking them to switch the loan only when they tick all the boxes.

If you have been wondering about switching the loan lately, go through this golden checklist to know if it is the right time to opt for a home loan balance transfer.

  • There is a significant difference in interest rates.

Before applying for the refinance, check the difference in the home loan interest rate. If there is a very slight difference in the home loan balance transfer interest rates, you might end up paying more than you save. You must be able to save by switching the loan. The best way to determine your savings is by using the home loan balance transfer EMI calculator. Through this tool, you can check the difference in the EMI and the total cost of borrowing after the balance transfer. Accordingly, you can do a cost-benefit analysis by considering both the savings and the cost of transfer and then decide. 

  • It is just the beginning of your home loan tenure.

Experts believe that the best time to transfer your loan is at the beginning of your tenure. Transferring in the later years of the tenure is not usually beneficial, as most of the interest component has already been paid. Therefore, if you transfer for lower interest rates during the later years of the tenure, you might not be able to save anything at all.

  • You are getting facilities such as top up loans

It would be helpful if you check the additional facilities you can get with the transfer. Does the new lender offer a top-up loan? Do they have an overdraft facility? Assess your needs before making the switch. Especially, top up loans could be beneficial as they offer additional loan amount if you need extra money. It is a faster and cost effective solution as compared to other options.

Bottom line

Sure, a home loan balance transfer can help you save money and even get lower interest rates. However, it is crucial to ensure that it is the right time for you to transfer. A drop in rates doesn't necessarily mean that you can save on your cost of borrowings. You must consider all the aspects of home loan refinance and then take the plunge.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.