Loan against property balance transfer is an important facility that lenders offer and using which loan against property borrowers can switch lenders to benefit from a lower property loan interest rate, better service, or a top-up loan.
When one opts for this facility, the new lender pays off the current one. Loan against property balance transfers can be highly beneficial. However, only when one avails of this facility after carefully analyzing both the pros and cons and performing a thorough cost-benefit analysis.
This article shares with its readers certain loan against property balance transfer strategies that will help them make the most of this facility available to them.
1. In the majority of cases, people opt for a loan against property balance transfer when they are finding it hard to afford their current mortgage loan EMIs. By switching to a lower interest rate, borrowers can easily bring their EMIs within the affordable range.
However, do keep in mind that if you are being offered lower mortgage rates in India but can afford to pay your current EMIs, it is best to continue paying those EMIs at a lower interest rate so that you become debt-free quickly.
2. Lenders treat all loans against property balance transfer applications as new loan applications. Therefore, it is a must that you meet all the qualifying criteria to be considered eligible for the loan against property balance transfer as well as be considered for the best loan terms and conditions.
If you are planning to opt for a transfer, make sure your credit score exceeds 750. Further, opt for a low LTV ratio loan while maintaining job and income stability. This will not only help you get approved for a loan but also request your new lender for the best mortgage rates in India they have to offer.
3. Loans against property are sanctioned on two different types of interest rates: fixed and floating. As per the latest RBI mandate, individuals repaying a loan on fixed interest rates can prepay or foreclose a loan only after paying the required penalty.
Further, loans against property balance transfers always attract a balance transfer fee, which all loan applicants have to pay, irrespective of whether they are on fixed or floating interest rates.
Thus, anyone planning to opt for the loan against property balance transfer must use the balance transfer or LAP loan calculator to correctly understand how their EMIs, total interest outgo, and cost of borrowing money will change if they opt for the loan against property balance transfer option available to them.
They should go ahead and switch lenders if the total money saved far exceeds the money spent on covering fees and charges.
4. All lenders recover the interest component of their loan first. Consequently, during the first few years, the majority component of your loan EMIs go towards repayment of the interest component.
If you opt for a home loan balance transfer after you have already repaid a considerable portion of your interest, you will find that the balance transfer won’t help you save any money.
Therefore, one must opt for a loan against property balance transfer only during the early years of one’s repayment journey and never after they have already repaid the majority portion of the interest.
5. As a rule of thumb, it is believed that for a loan against property balance transfer to prove beneficial, there must be at least a 25bps difference in the interest rates if the remaining loan tenor is 15 years and if the remaining loan tenor is 10 years, there must at least be a 50 bps difference in property loan interest rates.
Final Words
Loans against property balance transfers prove beneficial only when availed of after careful planning. If you are planning to opt for a balance transfer, think things through. Use the various tools available on the interest for your help.
Switch to a lower interest rate if you can afford to continue paying the same EMIs. This will help you become debt-free quickly. More importantly, if you feel that you need extra funds to take care of a financial requirement, consider availing yourself of a top-up loan.
However, commit to this loan only if you are financially prepared to make this commitment.
