A home loan involves a significantly amount of money and therefore, the interest rate on the loan is the most important factor for everyone to decides to take a home loan. Home loan interest rates may range from 9% to 11% and one of the most common ways to reduce interest rates is to go for a transfer of the balance on existing home loan or in layman terms, shift your home loan to a bank offering lesser rates and better loan terms.
Balance transfer, technically known as ‘takeover of loan’ or Refinance, is a chance to choose from a smarter ways to lower the loan payments with lower interest rates. Balance transfer of loan is the process where a customer transfers his outstanding principal amount to another bank or financial institute primarily for a better rate of interest and also better features including additional loan amount.
However, the prime motive behind balance transfer should be to reduce the burden of your debt. There is a fee usually equal to 1% of the loan transferred that is payable to the new lender for the proposed loan by the borrower.
Benefits for applying Home Loan Balance transfer
- Lower interest rates.
- Additional top up on existing loan in order to get ready-cash for any needs.
- Reduced EMI’s, further reducing the amount of money to be paid as interest on loan.
- Increased tenor for repayment of loan reducing the monthly outflow of EMI.
- Easy documentation for the balance transfer of loans.
Home loan Balance Transfer eligibility Criteria
Home loan Balance Transfer eligibility includes many criteria’s that the loan applicant needs to satisfy in order to be eligible for a home loan Balance transfer. Every lender has different home loan eligibility criteria but there are certain common factors which are checked to access the loan applicant’s credibility such as age, income, work experience and credit history and the type of property he is purchasing along with the employment type.
Irrespective of the applicant’s occupation or profession, there is a need to check eligibility before approaching banks and this can be done through Mudrahome.com with a help of few clicks.
The criteria with respect to eligibility for a home loan tend to vary from one lender to another. Following are some key requirements to be taken into consideration:
- Employment Stability
It’s a crucial aspect for home loan consideration. Unless the applicant is salaried and employed for at least 2 years in the current profession or if the applicant is self-employed with minimum 3 years of total business vintage, home loan will not be processed.
- Age Criteria
The younger the applicant is there is more probability of getting loan. The minimum age of the applicant should be 21 years. Most banks offer home loan Balance transfer for salaried employees only if they are between the age group of up to 60 years. However for self-employed this will change to up to 65 years.
- Credit Rating
Apart from the applicant’s company’s performance, individual credit rating has a lot of importance. Good credit rating will increases the chance of getting the loan with more flexibility on loan amount, EMI, tenure and interest rates. Default payment records, fraudulent tracks, and outstanding loan, will reflect negatively on the applicant, this could lead to bank’s rejecting the loan application or will charge high rate of interest.
- Income Levels
Your current income level plays a key role in determining not only your eligibility but also the maximum limit of the home loan balance transfer offered to you. A high net monthly income is indicative of an ability to pay a higher EMI amount and better chances of timely loan repayment. For this factor, not just present income status is considered, the past records of financial stability holds lot of value in deciding the eligibility for home loan Balance transfer. It is a key to success in all fields if you have good financial records, this can decide the interest rate percentage, loan amount and tenure when applying for loan.
- Property market value
Bank/NBFC get the property valued independently and offers a loan amount upto a percentage of the current market value , this varies from bank to bank but usually falls in between 70% to 80% of the current market price. This is also done to check if the property in question meets all the by-laws of construction laid by the government authorities.
- Legal Search/Title Search
The lenders do a complete legal search of the property which the borrower is intending to mortgage, this is done in order to confirm whether the property in question is free from all encumbrance, and to check the authenticity of the ownership of the property.
Applying for home loans Balance transfer online or offline requires the borrower to submit a list of documents as demanded by the loan provider. Documents required for home loan Balance transfer vary as per the employment type of the individual, i.e. salaried or self-employed, The following, however, are commonly requested for from all the applicants:
- A duly filled bank loan application form
- 2 recent passport size photographs.
- Proof of identity (Copy of Aadhar/Passport/Voter ID/PAN Card/).
- Proof of address (Copy of latest Electricity Bill/Telephone Bill/Property Tax Receipt/Voter ID/Passport).
- Last 12 months’ Pass Book/Bank Account Statement for all saving and current accounts
- Identification of signatures from present bankers or a signature proof such as PAN card.
- A cheque covering the administrative costs/processing incurred by the bank in processing the application
Important Documents for Home Loan Balance Transfer
- A letter on the letterhead of the existing lender stating the list of property documents held by them.(LOD- List of documents)
- Latest outstanding balance letter from the existing financial institution on their letter head.(Updated SOA along with closure charges)
Documents Requested from Co-applicants
- Identity and address proof.
- 2 passport sized photos.
- Proof of business.
- Identification of signatures from his/her present bankers or a signature proof such as PAN card.
Additional Documents Requested from Salaried Applicants
- Letter of employment
- Salary certificate from the employer (original).
- Copy of ITR along with computation of Income or Form 16 for last 2 years.
- Last 6 month salary slips
Additional Documents Requested from Self-Employed/Professionals/ Business entities
- Copy of ITR/Assessment Orders of 3 years.
- Computation of Income/ Profit and loss account/ Balance Sheets of last 3 years.
- Audit reports for last 3 years if any.
- Business registration proof in case of self employed individuals.
- Statement of Personal assets and liabilities.
- GST returns for last 4 quarters.
- Partnership Deeds in case of partnership firms
- Certificate of Incorporations/Article of associations/Memorandum of associations in case of private ltd company.
Documents related to property
- Copy of agreement to sell for the property in question.
- In case of builder property purchase copy of builder buyer agreement along with payment receipts.
- In case of resale copy of complete chain of property papers right from the origination.
- Copy of allotment and possession letters
- Copy of house tax, along with other government departmental taxes.
- Copy of the sanction map of the property
Fees and Charges associated with Home loans
- Processing Fees
As the name suggests this fee is collected towards processing of your home loan Balance transfer application. This fee is non-refundable and is collected upfront at the time of sanctioning of the loan. Take this into account before choosing the bank you want to take the loan from. It may vary for every institution but usually ranges between 0.5% till 1% of the loan amount.
- Pre-payment charges
Paying off the loan either entirely or in parts before the end of the loan tenure is considered as pre-payment of the loan. While there are no pre-payment charges applicable on home loans Balance transfer with a floating rate of interest, as per Reserve Bank of India norms, lenders do charge some penalty for home loans with fixed interest rates if the borrower wants to prepay the loan. The penalty charges vary from bank to bank but hover around 2% to 5% of the outstanding balance at that time.
- Legal and technical verification fee
Once you submit your property documents with the bank, the bank has to undertake a process to get the documents verified legally. Banks have a team of legal and technical experts, or outsourced agents, who verify the submitted documents for each loan applicant and initiate technical inspection for the property. For some banks, the processing fee is inclusive of these charges while some others charge this separately. In case you are seeking a property that is from a project approved by the same bank, then the legal charges are usually waived off.
- Loan conversion fee/switching fee
If you have taken up a home loan with a floating rate of interest but now want to switch to a fixed interest rate or vice versa, the bank will charge a loan-switching fee to facilitate such a request. While charges vary from bank to bank, most banks on an average charge 0.5% to 1% of the outstanding loan amount to facilitate such a switching as requested. In recent years, such switching fees are more prevalent for fixed-to-floating than the other way around.
- Late payment charges
If you are a home loan borrower, make sure you follow your EMI due dates diligently. Banks and NBFCs charge a late payment charge for every delayed EMI. On an average, late payment charges can vary from Rs. 200 to Rs. 500 plus 2 per cent additional interest as penalty.
Check List before applying a Home Loan Balance transfer
Taking a loan allows you to borrow money for almost all your requirements and to have a better experience, there are certain points you must know before availing a personal loan.
- Loan Amount & Tenure
Depending on your income and repayment capacity, decide upon the loan amount you need and for how much duration.
Checkout eligibility criteria of different banks and identify which one suits your needs the most.
- Processing Time
For your immediate monetary requirements, knowing about the processing time of loan can be of great help.
- Interest Rate & other charges
Your complete loan experience depends upon the interest rate, processing charges, prepayment charges and other such charges. Know them before hand to take a well-informed decision.
- Repayment History
Your financial health will define your credit worthiness. Make sure you have all the necessary documents to prove your strong credit history and income.
Note down the list of documents required to apply for a loan.
Do not ignore independent foreclosure policy and charges of different banks.Please note the same is negotiable.