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Home loans are one of the best mediums seen to help a citizen purchase their dream house. Home loans reduce the burden of gathering lump-sum cash, and instead provide a flexible payment mechanism in the form of Equated Monthly Instalments (EMIs). Just like any other EMIs on a term loan, home loan EMIs involve a percentage of your principal loan amount along with the prescribed percentage of interest rate that your lender has levied on you for borrowing. These EMIs are paid on a monthly basis. However, in times to come, borrowers do have the benefit of transferring their home loan balances to from one lender to other lender.

A home loan balance transfer is usually the transfer of outstanding loan amounts from one lender to another. Let's suppose, from a private bank to a public sector lender or a foreign bank. Usually, a home loan balance transfer is done to achieve lower interest rates, better tenures, or even better services.

Although, transferring a home loan balance from one lender to another is seen broadly to save on interest rates one repays as EMIs, however, there are certain mistakes that need to be avoided to save more.

According to Jairam Sridharan, MD, Piramal Capital & Housing Finance, a borrower should avoid below mentioned mistakes while home loans balance transfer.

1. Not factoring transfer processing fees and costs involved:

The borrower must thoroughly analyse all the terms and costs involved before transferring the home loan from the existing lender to another. While a lower interest rate may be tempting, borrowers must factor in other aspects such as overall savings, loan tenure, charges levied for balance transfer, and other fine print.

2. Unnecessarily undertaking the balance transfer:

A back-of-the-envelope calculation will help the borrower determine if opting for a balance transfer will work out to be less expensive than the present EMI outflow. Another aspect that borrowers tend to overlook is the charges that the lending institutions levy for balance transfers. If the loan is being paid over a considerable period and the borrower is looking to spread out the cost, then undertaking a balance transfer may not be the best idea.

3. Overlooking the credentials of the lender:

Different lenders have varying terms of service. It is prudent to conduct proper checks and do due diligence on the new lender’s reputation. A lower interest rate should not be the only factor to switch to another lender. Borrowers must check the track record, reviews, business vintage, and transparency of information. Any red flags in the reputation of a lender can be a deal breaker in the long run.

4. Tenure miscalculation:

Borrowers must pay careful attention to the tenure of the home loan before opting for the balance transfer. It is a very crucial aspect. For instance, if the EMIs are lower due to a longer tenure but the interest outflow interest payable is higher, then it defeats the purpose of going in for a home loan balance transfer.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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