The Collateral World of Mortgaging Property
January 21, 2022
January 12, 2022
A loan against property at higher interest rates can drain you mentally. But, what if we say you can diminish the burden of your interest rates against such a loan?
A loan against property balance transfer allows you to transfer the existing loan to another lender and avail of the benefits at lower interest rates. However, before counting on a balance transfer loan against property (LAP), you need to consider multiple factors to avoid additional expenses.
If you can avail of a lap balance transfer, don’t let it slide out of your hands. Dig deep and get familiar with the processing fees and transfer charges.
In this article, take a look at the essential elements that must be considered before opting for a loan against property balance transfer. But before that, let us go through the basic definition of a loan against property balance transfer.
When you decide to transfer your loan against property (LAP) from one bank to another, you don’t transfer the principal amount you have borrowed. The balance amount is transferred to another bank you choose at your convenience. This remaining balance transfer to the new lender is termed a balance transfer loan against property.
The key reason behind balance transfer is to avail a loan at a better interest rate. As a result, the payable interest component is reduced, and you save a significant sum on the overall repayment amount.
However, you can’t stick to a loan against property balance transfer because you get a better interest rate deal. To avail of maximum possible benefits from balance transfer loans, you have to consider certain other factors.
Don’t just look for the benefits when you plan to opt for a loan against property balance transfer. Look into the correlated factors that account for the amount you save with the balance transfer.
Being familiar with the following factors will help you decide whether you should count on a balance transfer or not.
Lenders usually charge prepayment penalties to cover up the pre-closure loss. Thus, when you apply for a balance transfer loan, look into the prepayment charges you will have to pay.
If the penalty amount is almost equal to the amount you will save with the balance transfer, we suggest dropping the idea. Going through a loan procedure will be futile if there is zero net profit. Get in touch with your lender, and know about the prepayment charges.
When you apply for a lap balance transfer, get familiar with the processing fee of the new lender. Banks and finance providers charge a certain amount as a loan processing fee.
Research the processing fee and other charges to determine the net savings you will make through a balance transfer. If you think it offers you the opportunity to have significant savings, then go for it; else, you can continue paying your monthly instalments to the existing lender.
The balance transfer scheme can be considered as a fresh start. So, look for a lender who offers a lower interest rate and great services coupled with better lending terms. Don’t choose any lender in one go.
Explore a bit, compare the offerings, and then decide the best one out of them. Ideally, the lender offering lower interest rates, minimal processing fees, and reliable services will be the best fit.
If your repayment tenure is less than five years, you should not count on a balance transfer. It is because, by this time, you have already paid the interest component and are only left with the principal component.
The key benefit of a balance transfer loan against property is lower interest rates. If you are already done with paying the interest component, there is no point in sticking to a balance transfer loan. Pick a balance transfer loan with more than five years of repayment tenure.
Getting approval for a loan against property balance transfer depends on your credit score. If you don’t have a good credit score, the lender might offer you a balance transfer at higher interest rates.
Thus, before moving forward with a balance transfer, know your credit score together with the repayment history of the ongoing loan. Possibilities are you had a good credit score initially, but the missed EMI’s generated a negative impact and resulted in a bad credit score.
So, it is recommended to look into the credit score to understand what you are going to get from the new lender and at what interest rate.
You might not have noticed this factor yet. Still, the repayment history of the ongoing loan plays a critical role in a balance transfer loan against property.
The new lender will focus precisely on your repayment capacity, financial stability, monthly repayments, and credit profile. Go through the repayments that you have made toward the ongoing loan. Any sort of discrepancy might result in non-approval of the balance transfer too.
Thus, it is recommended not to default on loan EMIs as they significantly affect the credit score, interest rate, and availability of new financial products.
The last and most important point is the cost incurred in a LAP balance transfer. Never forget about the penalty and fees you have to pay to transfer a loan from one lender to another.
To determine the incurred cost, you need to consider two things, i.e. processing fee and prepayment charges or foreclosure charges.
Add these factors and deduct the amount from the overall savings you will make with a balance transfer. It will help you determine if it’s a good idea to opt for a loan against property balance transfer or not.
Your monthly EMI consists of more interest components in the initial loan repayment period. Thus, you can go for a balance transfer in the initial loan period.
Another best time to pick a balance transfer loan is when RBI issues new guidelines or updates the repo rate. Compare various lenders’ processing fees and interest rates with the new repo rates and guidelines to check if you can go for a balance transfer.
Let us consider an example to understand how it really works:
You have availed a loan against property with a repayment tenure of 20 years. You are repaying the loan for 6 years and still have 14 years of repayment tenure left. RBI has recently updated the repo rate and the interest rate is lower than the existing one. This will be the perfect time to opt for a loan against property balance transfer.
A loan against property balance transfer can help you save a huge amount of money with reduced monthly instalments. To avail maximum possible benefits, consider the above-discussed factors.
The amount thoroughly depends upon the difference in the new interest rate, processing fee, and foreclosure charges. The greater the difference between existing and new rates, the more the savings. The key reason behind this rate difference is fluctuating repo rates. Although, an improved credit score can be an additional reason too.
After referring to the information mentioned above, it is clear that a loan against property balance transfer is the foremost choice. However, you need to consider incurred costs together with the processing fees, pre-closure charges, and credit history. Go for a LAP balance transfer when you get lower interest rates and save more by choosing another lender. Additionally, it is recommended to consider balance transfer loans during the initial repayment tenure.
Yes, you can transfer your loan against property to another bank by providing the required documents. Banks and finance providers depend on certain factors to approve such requests, including repayment history, credit score, and financial stability.
Yes, a home loan balance transfer is a good idea as it allows you to save a lot on loan repayment. The transferred loan offers the benefits of a lower interest rate.
No, you cannot transfer a loan against property to a home loan.
Yes, PMAY is applicable for a balance transfer.