Everything You Need To Know About RBI Guidelines for Home Loan Balance Transfer In 2022

The real estate space has seen a sharp surge in recent years as every family dreams of owning at least one property in a location of their choice. Additionally, due to various government initiatives, people have realised the importance of owning a house.

As we all know, many people aspire to own their dream house but fully financing it becomes a challenge. Therefore, in such cases, they opt for home loans. Additionally, with an increase in the number of people buying houses, there has been a huge rise in home loan applications.

Various financial institutions provide home loans. These institutions are both public and private. Furthermore, various Non-Banking Financial Institutions (NBFCs) offer a wide range of home loan products.

The banks’ home loan products are subject to specific legislation and regulations that the Reserve Bank of India (RBI) implies. However, as the RBI does not regulate NBFCs, and these institutions provide home loans from their capital; therefore, there is no interference from the regulator.

Now that we have understood the functions of the two categories of home loan lenders, let’s dive into which type is best-suited basis key factors such as interest rates, loan eligibility, processing time or turnaround time, and so on.

In the case of a bank, the Repo rate determines the interest rates. However, in the case of an NFBC, the interest rates are determined by prevailing market rates. Additionally, unlike banks, the NBFCs provide you with various benefits and options such as flexible terms & conditions, higher home loan eligibility and approvals even in cases of low credit scores, a faster processing time, quick disbursement, and less documentation, among others.

The RBI has recently come out with guidelines for home loan balance transfers. These guidelines indicate that you can transfer your home loan balances to maximise your loan affordability with better terms of service. The guidelines state that banks and money lending companies cannot charge home loan fees to transfer the balance.

How does a Home Loan Balance Transfer work?

To transfer your home loan balance, you must first foreclose the current home loan and take a new home loan for the due principal amount. You can apply for a new home loan with the charges waived off on foreclosure of floating interest rates. However, a few banks may charge a pre-payment penalty ranging from 1% to 3% on fixed-rate loans.

A home loan balance transfer can be a viable and feasible option if you get better loan terms and a lower interest rate.  However, before transferring your loan, consider all the factors and make an informed decision.

Factors to consider before opting for a home loan balance transfer

Below are the factors that you must consider and carefully weigh your options before opting for a home loan balance transfer:

Workout overall savings

While opting for a home loan balance transfer, you should always consider all the additional costs levied by your current lender for closing the existing loan before the tenure. You should also consider the processing fee charged by the new lender. In general, you must always consider your overall savings; if transferring your loan enables you to save more, you should opt for it.

Ease of processing and documentation

When applying for any loan, processing and documentation may become tiring. Therefore, it is prudent that you go for a lender who provides a hassle-free experience with minimal documentation.

Analysing the remaining tenure of an existing home loan

It is also important to note that if you opt for a loan balance transfer in the later stages of your tenure, it may prove less beneficial since a huge chunk of the interest is paid in the initial stages of a loan. Therefore, it will leave very little room for overall savings.

Moreover, you must also duly consider additional costs associated with the transfer, such as processing fees, foreclosure charges, EMI bounce charges, penal interest rates, convenience charges and so on. All these factors will help you make an informed decision about your transfer.

There are various benefits of home loan balance transfer that you can enjoy once you analyse the factors mentioned above. Here are some of the benefits and advantages of opting for this facility:

Lower rate of interest

Getting a low-interest rate will help you save on the overall cost of the loan, which is one of the essential benefits of transferring your balance loan to another lender.

Flexibility in repayment tenure

You can also enjoy the flexibility of repaying your loan per your financial capabilities.

Payment options

Payment options like part-payments allow you to repay a portion of the outstanding loan principal. These options also help you reduce your loan amount or the monthly EMIs.

Top-up loan options

Top-up loan options allow you to get additional funds to buy a new property or renovate an existing property. Lenders these days also provide you with competitive rates on ongoing housing loans.

What are the Documents Required to apply for a home loan balance transfer?

Here’s a list of documents that you will need to submit to the lender for the transferring the balance:

• Bank Account Statements
• Address Proofs (Aadhar card & PAN Card)
• Other KYC documents demanded by the lender 
• Photographs

Additionally, if you are self-employed, you must submit a properly audited profit & loss statement to the lender.

Conclusion

If you are unhappy with the terms offered by your current lender, you can opt for a balance transfer. However, before deciding, you should always consider the earlier mentioned points, which will help you make an informed decision based on your financial capabilities and goals. Paying your EMIs on time is also important, as it will ensure that you maintain your credit score and enjoy a hassle-free borrowing experience.

Get in touch with Piramal Finance for more information.