The Reserve Bank of India (RBI) recently conducted a monetary policy review (MPC) and decided to cut the repo rate by 25 basis points to 6.25 percent.
This reduction will lower interest rates on home loans for both existing and new borrowers, providing an opportunity for refinancing at a more favorable rate.
Home loan refinancing, also known as a “home loan balance transfer,” allows borrowers to transfer a home loan from one lender to another, offering a lower interest rate.
This means that the monthly EMI (Equated Monthly Installment) burden will decrease, ultimately saving significant money in the long run. This option is particularly beneficial for those in the early stages of their home loan.
How Does a Home Loan Balance Transfer Work?
For a balance transfer, a borrower must approach a bank or housing finance company that offers a lower interest rate. The process begins when the new bank agrees to take over the existing home loan.
The new bank pays off the outstanding amount to the original lender. Once the existing bank receives this payment, it will release the property documents and issue a no-dues certificate to the borrower.
These documents are then transferred to the new bank. After this process is complete, the borrower will begin making EMI payments to the new bank according to the terms of the new loan agreement.
While the prospect of securing a lower interest rate by switching banks can be appealing, borrowers should carefully assess processing fees, loan tenure, and overall savings before proceeding with a home loan balance transfer.
Things to Note:
Cost vs. Benefit: Many borrowers transfer their home loans to take advantage of lower interest rates and reduce their EMI burden. However, it is crucial to ensure that the transfer is financially beneficial. The costs associated with processing fees and other charges should be compared against potential savings from a more competitive interest rate.
Loan Tenure: If your loan tenure is nearing its end, transferring your loan may not be the best decision. Consider a balance transfer, mainly if you have taken out a new loan.
Qualifications: Similar to obtaining a new loan, factors such as your credit score and repayment history significantly secure a lower rate when switching loans.
Hidden Charges: Before signing a new loan agreement, it is essential to understand any hidden details of the balance transfer, including the terms, conditions, and charges imposed by the new bank.
Currently, the ten banks offering the lowest interest rates on home loans are:
- Central Bank: 8.10 – 9.25%
- Union Bank of India: 8.10 – 10.50%
- Bank of Maharashtra: 8.10 – 10.65%
- Indian Bank: 8.15 – 9.55%
- Indian Overseas Bank: 8.15 – 8.75%
- Bank of Baroda: 8.15 – 10.35%
- Punjab National Bank: 8.20 – 9.85%
- State Bank of India: 8.25 – 9.20%
- Canara Bank: 8.25 – 11.00%
- UCO Bank: 8.30 – 10.00%
Timely repayment of a home loan will ease the debt burden. If the new interest rate is low and the tenure is extended, you can save a substantial amount—sometimes several lakhs of rupees—over time.
Before transferring or refinancing your home loan, evaluate the support offered to customers by the new bank, compare competitive interest rates across different banks, and negotiate terms that best suit your needs.