The motive behind the creation of an asset is either to add value to your level of comfort or act as security in times of need. Buying a home fulfills both these requirements and is said to be one of the wisest financial decisions that one could ever make. After all, you get to live under your own roof and get rid of paying rent. Also, the investment that you have made in the house grows with time along with appreciation in the value of the house. It is true that having your own home bestows numerous benefits on you, both socially and financially. But the fact of the matter remains that due to ever-increasing prices of the residential real estate, it has become tougher for anyone to make an outright purchase of a residential house.
What is a Home Loan?
A Home Loan is a secured loan which is offered by financial institutions to help you purchase a residential property. The property purchased with the help if a Home Loan is mortgaged with the lending financial institution as security. You can continue living in the house while repaying your EMIs (Equated Monthly Instalments) for the duration of the Home Loan, which is usually up to 30 years. At present Home Loans Interest Rates start from 8.40%.
Buying a home with the help of a Home Loan is one of the biggest financial decisions of an individual’s life as you are committing to pay the EMIs for a large part of your working life. Due to the sheer duration of the housing loan, the rate of interest plays a very significant role. That is why most of us keep on looking for ways to reduce the burden of EMIs.
Home Loan Balance Transfer vs. Top-up Loan
This is one question that every home buyer who has taken a home loan must face sooner or later. You must choose between Top-up Loan or Home Loan Balance Transfer (HLBT) depending on the benefits your financial needs.
Home Loan Balance Transfer
When you take a Home Loan to purchase a property, the lender offers you the facility at a floating rate, which should change according to the changes in the base rate by the Reserve Bank of India. But it has been observed that most of the lenders do not pass on the actual benefit of such reduction, and you end up servicing EMIs at higher interest rates as compared to what is available in the market. In such instances, Applying for a Home Loan Balance Transfer is your best option.
Every financial institution wants good customers for their business, and they would be willing to offer you significantly lower rates of interest when you opt for the Home Loan Balance Transfer facility. It means that you are transferring your existing Home Loan to a new lender, who will repay your current Home Loan to the current lender and would then create a new home loan account for you.
This option helps you save a lot of money that would have been paid as interest and in turn, helps in reduction of your EMIs. Money thus saved can be used by you for any other productive purpose.
But before you take a decision on HLBT, you need to understand the remaining duration of your home loan. Every loan structure is designed in such a way that you pay more interest initially which then reduces gradually. If you have already paid the EMIs for a considerable number of years, then opting for HLBT would not make any sense as the financial costs involved far outweigh the benefits associated.
If you have to repay your EMIs for a considerable number of years, it is evident that the market value of the property would be higher than the loan amount outstanding. In such cases, most lenders would be willing to extend you a Top-up loan which can be used for any purpose you want. This facility is offered by extending the existing mortgage on your loan account. This is a speedy process and requires minimal documentation.
But you must remember that the rate of interest charged for a top-up loan is going to be slightly higher than Home Loans.
Top Up Home Loan Balance Transfer
But, there is one new product offered by financial institutions that gives you the combined benefits of Home Loan balance transfer and Top-up Loans, and that is Top Up Home Loan Balance Transfer. This facility is extended by lenders, wherein when you opt for Home Loan Balance Transfer, you can avail a top-up loan along with. This facility allows you to enjoy the benefits of lower interest rates on your Home Loan and receive a lump-sum amount as top-up loan to take care of your financial emergencies. The top-up loan offered by the new lender along with HLBT comes at significantly lower rates as compared to what would have been charged by your existing lender.
So, if you are considering exercising your option for an HLBT, then choosing Top up Home Loan Balance Transfer facility offers you the maximum benefits.
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