The RBI mandates lenders to not levy any additional charges on individuals for the prepayment or foreclosure of any term loan sanctioned for purposes other than business, such as a home loan, on floating interest rates. This guideline protects the interest of borrowers, allowing them the freedom to prepay/foreclose home loans, among others, whenever they choose to.
Another benefit of this guideline is that it gives borrowers the leverage in terms of controlling their interest rates – to an extent. How? Before the guideline came into effect, the steep charges associated with foreclosure deterred one from prepaying a loan, even when they had surplus funds. Further, your home loan interest rate could remain high even in a favourable market scenario since the lender may not transfer the rate benefit to you.
Given that there are no foreclosure charges for individual borrowers with floating interest rate home loans, one can choose to transfer their balance loan amount to another lender for better home loan terms. Thus, giving you the power to avail of the best terms at any given time.
1. Choose a home loan balance transfer for a more competitive interest rate
The foremost reason why most borrowers avail of a home loan balance transfer is a lower interest rate. Of course, the interest rate offered to you still depends on your profile and eligibility, but one stands a chance to avail of a lower interest rate, thereby saving substantially on their interest outflow over the course of their tenor.
One of the factors why you may be able to avail of a lower interest rate now is if your credit and financial profile have improved. Your credit score plays a key role in determining your interest rate, and if you have managed to improve your CIBIL score to over 750, you may be offered a lower interest rate.
2. Choose a home loan balance transfer to alter other loan terms
When availing of a home loan balance transfer, you also have the option to relook at your loan terms. A lot of first-time home loan borrowers may not completely understand their loan terms. With time, you may want to change some of your terms of borrowing.
3. Choose a home loan balance transfer to change your tenor
When you refinance your home loan, i.e., opt for a home loan balance transfer, you have the chance to renegotiate your home loan terms. One of the aspects you can reassess is your home loan tenor
While you may take a calculated decision and choose a tenor based on your income, obligations, and disposable income, it is possible that once these parameters change over time, your home loan tenor and EMI may no longer work for you.
For instance, your income may have increased significantly, and you may now want to repay the loan quicker and become debt-free sooner. Alternatively, your obligations may have increased, and you may now prefer to bear lower EMIs with a longer repayment tenor. Either way, you have the option to make repayment more comfortable when renegotiating your loan terms.
For instance, you may want to change the benchmark that your interest rate is linked to, i.e. move from an external benchmark linked home loan to a lender’s internal benchmark linked home loan. While banks offer only external benchmark linked loans, most HFCs offer internal benchmark linked loans also. When selecting a lender, you may want to keep this in mind.
Bajaj Housing Finance Limited, a 100% subsidiary of Bajaj Finance Limited, is one of the first HFCs to offer borrowers the option to either choose an internal benchmark linked home loan or an external benchmark linked home loan, i.e., a home loan linked to the repo rate
. The lender offers competitive interest rates, starting from 7.20%* p.a. for salaried and professional applicants. Those with an existing home loan can transfer the balance amount on their loan to the lender for interest rates starting as low as 7.35%* p.a. for salaried and professional applicants.
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