Ever since the coronavirus struck the world about 2 years ago, it’s been clearly visible that just like many other developing nations, the Indian economy has been witnessing a falling interest rate regime, with both loans as well as bank FD rates on a significant downfall in the last 2 years. This has indeed been a positive sign for housing loan borrowers of banks and HFCs, as they are enjoying low-interest rates on new and existing home loans.
That is exactly why not only does it seem to be a great time to own a home if you are financially ready, even the existing borrowers can go for balance transfer and fetch the low rates being offered by many lenders. This would help in reducing your housing loan EMI burden and pull down the overall interest cost as well!
However, keep the below-mentioned things in mind before applying for a balance transfer with dmi housing finance.
Check your existing benchmark regime.
As per RBI guidelines from 1st October 2019, it is important and compulsory for all new floating interest rate loans to be linked to an external benchmark. So even for home loans, the external benchmark is applicable, and the one chosen by most banks has been the RBI repo rate. When compared to older rate-setting regimes such as MCLR based regimes, external benchmarked loans involve the swifter and quicker transmission of policy rate changes.
So, borrowers currently servicing their Shriram Housing Finance home loan on older rate regimes can compare the loan interest rates offered by other banks for balance transfer facilities. If the rates are much lower and can hence lead to interest cost savings, then you can go ahead with the HLBT decision.
Since the transferred housing loan through DMI Housing Finance balance transfer will be considered as a new housing loan by the new lender, it will be linked to the currently compulsory benchmark of repo rate or any other external benchmark regime chosen and in practice by the housing loan lender.
But, given that external benchmark linked housing need to be reset at least once in 3 months, choosing this regime makes sense only for those borrowers who can handle frequent and swift changes in their existing housing loan rates.
Whereas those having home loans with HFCs can scout for lower interest rates being offered by other lenders on the balance transfer option if their existing lender’s interest rate is significantly higher than theirs.
Negotiate with your existing bank/HFC
Before you hop onto the low home loan rates by going for the balance transfer on the Shriram housing finance home loan, first enquire with your existing bank/HFC with which you are serving the home loan repayment.
This is important because your request for Shriram housing finance balance transfer will definitely be considered as a brand new housing loan application by the new lender, so you may have to again be involved in the process of housing loan steps like house property evaluation, numerous documentation etc. And since all these steps would mostly involve significant time and effort, it is better to first enquire with your existing bank or financial institution or lender for negotiation.
Assess your overall interest cost savings through a calculator
The main aim behind home loan balance transfers mostly is to lower the overall interest cost of existing home loans in India, more so in the case of home loans availed at much higher interest rates. Through the option of balance transfer of Shriram housing finance home loan, you can lower your overall interest cost on a home loan in India without compromising on your liquidity & existing investments, not like in the case of prepayment wherein you get to lower the loan interest cost by making payment out of your savings or surplus funds that can impact your financial liquidity. Hence, go for the balance transfer option as it can turn out to be a great move, especially for home loan borrowers who have now eligible to get lower rate home loans from other banks or financial institutions or lenders due to reasons such as an improved credit profile.
However, keep in mind that charges like processing fees, administrative fee etc., which are mostly applied by a new lender when accepting and working on your Shriram housing finance balance transfer request, should never be neglected.
Have a look at your remaining home loan tenure
Another vital parameter to not overlook when going for switching of dmi housing finance is your remaining home loan tenure. Going for a home loan balance transfer later might not be of much significance since you must have already made payments for the majority part of your loan interest component, thus implying that there is a lesser level of scope of fetching a high level of savings in the total interest rate during the later housing loan stages of repayment tenure.
And if you are, in fact, in the initial stages of your loan tenure and can fetch significant savings in interest cost, you need to be clear regarding one decision which your new lender will ask you for whether to keep the tenure the same as residual tenure after balance transfer or change it.
In all of such circumstances, many home loan borrowers may seem to be carried away upon seeing the downward movement of EMI amount as the repayment tenure gets stretched. And hence, they decide to opt for such a long tenure for the home loan after HLBT. That’s exactly where such borrowers go completely wrong and miss a big point.
So, when the primary aim behind switching of dmi housing finance home loan is to lower interest cost, elongating your tenure would enhance or increase your interest cost. This defeats the purpose of the balance transfer! The extension of tenure will only make sense if your aim is to lower your EMI amount, despite having to pay a higher total interest cost.
Else, if the purpose of going for dmi housing finance balance transfer is definitely interest cost-saving, it’s actually better for you to keep the repayment loan tenure of the new home loan post balance transfer in India the same as the remaining loan tenure of the existing home loan. Whereas if you aim to lower the loan EMI amount post balance transfer, you may go for a longer tenure, if possible, but try making prepayment whenever you have surplus funds, as this can help reduce the total interest cost on your dmi housing finance home loan.
