Throughout this decade, the Indian real estate market witnessed significant changes, primarily in the type and location of properties that prospective buyers looked for. A shifting job market has created a nationwide demand for real estate in India’s Tier-1 and Tier-2 cities, and a rising number of the nation’s populace moving into metropolitan areas has created significant demand for good quality housing.
The need to secure high quality accommodation has also contributed to the demand for financial products like a home loan. An increasing number of prospective customers are opting to avail credit, instead of using their savings, to meet the increasing real estate prices. Currently, India boasts one of the fastest-growing real estate markets, along with a financial market that offers credit to meet the monetary demand for homebuyers.
Brief insight into India’s home loan market
- Rs.9.7 trillion – Total home loan portfolio in India.
- 12% – Increase in the demand for home loans was witnessed in Tier-1 cities during the last financial year.
- 15% – Growth is expected in the housing credit segment during FY20.
The demand for home loans has also grown because of the list of features and benefits offered. Borrowers enjoy a hefty disbursed sum, extended tenor, and provision of housing loan balance transfer, a process that allows transferring the line of credit to a different lender for a lower rate of interest. This makes it a convenient option to secure funds to make a real estate investment in India.
Home loan balance transfer facility – Major points to consider
Home loan transfer is a process where the line of credit is transferred to another financial institution, paying-off the debt with the existing lender. Borrowers then repay the loan to the new lender, often, at a lower rate of interest.
Balance transfer facility is one of the easiest methods to lower the rate of interest applicable on a loan.
Servicing a long-term secured loan, like housing loans, at a low rate of interest can help borrowers save a substantial amount of money. Moreover, some Housing Finance Companies have recently hiked their MCLR by as much 0.10%, which necessitates the need to lower the rate of interest for better savings. Borrowers should know the MCLR rate while planning for home loan balance transfer.
However, housing loan balance transfer involves several steps and a thorough understanding of multiple aspects involved in the process. Let’s take a look at some of the major points which need to be considered before transferring a home loan.
- When to switch – It is necessary for borrowers to know when to opt for a home loan balance transfer. Financial experts recommend switching the loan early during the repayment tenor. Housing Finance Companies charge the interest component of the loan before repayment of its tenor. Switching HFCs before the second half of the loan tenor transfer most of the principal amount, benefitting from a lower interest rate.
- Other fees associated with the transfer – Financial institutions often charge several fees, including pre-payment penalty, stamp duty, and processing fee for housing loan balance transfer. These charges are one of the most crucial things to keep track of while opting for a balance transfer. The total finances paid during the transfer should not exceed the savings made while paying the revised rate of interest.
- Fixed or floating rate of interest – Borrowers can opt to change the type of interest (for example, fixed to floating or vice versa) while availing balance transfer facility. However, it is necessary to consider all the benefits associated with changing the type of interest rate offered. Fixed interest rates usually stay 2% to 3% rate higher than floating rates; however, floating rates can change with market fluctuations, resulting in higher rate of interest if market changes are hiked.
Balance transfer facility is one of the easiest methods to lower the rate of interest applicable on a loan. Keeping these above mentioned aspects in mind can help a borrower make the most financially beneficial decision and follow up with sound financial planning.