Situation: After the recent interest rate hike, Arup Chaudhary was unhappy with the bumped-up EMIs he was expected to pay towards his home loan. He had, recently, learned of the Home Loan Balance Transfer offering and decided to transfer the outstanding home loan balance to a new lender for better interest rates.
During his search, he was lured by a home loan lender that offered the lowest interest rate in the market. Months after switching to the new lender, Arup realized that he had made a mistake by not checking the lender’s credibility. He was faced with poor customer service, hidden charges, and much more.
Moral of the story: Don’t entirely base your decision of switching your lender on interest rates. A minor error in judgment can cause major financial setbacks!
Let us explain in detail the common errors borrowers make and how to avoid them.
Not Comparing Rate of Interest Offered
The idea of a Home Loan Balance Transfer is to reap the benefits of a suitable rate of interest. Thus, comparing the interest rates from multiple lenders should be a good starting point for anyone looking to make the switch.
Pro-tip: While making the comparison, also enquire about the type of interest rate available. Usually, in Home Loans range from fixed to floating to semi-fixed
In a fixed rate, the Home Loan interest rate remains the same throughout the tenure while floating rates vary as per the prevailing market conditions. In semi-fixed, the rate of interest remains fixed for the first few years and then moves to the floating regime. Compare and choose the interest rate, with caution, as per your needs.
Miscalculation of Tenure
Have you been advised to complete the Home Loan Balance Transfer process without paying attention to the tenure? Think again! In Home Loan Balance Transfer process, tenure is one of the crucial aspects to look for. This has two reasons and let us explain why.
First, the advantage of a home loan balance transfer is when you do it in the early years of the loan. This is because the interest component is high during the initial years. So, if you transfer to a lender offering a lower rate of interest, do so at the beginning of the loan to save on interests and EMIs.
Second, when you transfer your loan to the new lender, select the tenure with caution. While a long tenure may reduce EMIs, it may increase the interest outgo, defeating the entire purpose of a Home Loan Balance Transfer. You can compute your proposed EMI and savings with balance transfer through this online .
Not Taking into Account Credentials of the Lender
A low-interest home loan is a great motivator, we understand! But the poor reputation of a lender can be a deal breaker in the long run.
While scouting for a Home Loan Balance Transfer, do not let low interest rates influence your decision. We recommend using due diligence and conducting proper checks on your new lender’s reputation. You can evaluate your lender on parameters such as:
Unparalleled customer service (including digitized services)
Prompt grievance redressal
Flexible repayment options
Speedy sanctions and disbursals
Transparency with information (esp. pertaining to charges)
Pro-tip: Online reviews and customer testimonials are a great point of start to gauge your lender on these parameters
Not Factoring Processing and Associated Fees
There is a famous old saying, ‘there are no free lunches in this world’. That holds true for Home Loan Balance Transfer too!
Many lenders miss out on informing this at the time of onboarding, but a borrower faces certain charges during balance transfer. An application for Home Loan Balance Transfer is equivalent to applying for a new loan that draws charges such as processing fees and other costs. Thus, if you are contemplating opting for a Home Loan Balance Transfer, you should calculate your overall savings in the interest cost after factoring in these charges.
Pro-tip: Read the fine print and clarify with the customer care representative of the new lender for the charges.
To err is human, we know! But to make financial decisions based on incomplete information can be damaging. Thus, avoid the above-mentioned errors and get the most out of this exercise – helping you accomplish your mission of significant savings in the long run!
Disclaimer: The names used in this article are fictitious and are used for representational purposes only.
The contents of this article is for information purpose only. For more details, please refer to the product or service document and/or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its affiliates to any requirements. Godrej Capital or its affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.