How Home Loan Balance Transfer and Top-up Works?


Rajesh is a software engineer working in Ahmedabad. His income has been steadily increasing over the past 5 years. His current monthly income is 80,000. He has taken a Home Loan of Rs. 40 lakh for a term of 15 years and at the rate of 12%. After some time, his wife now wants to renovate the house and his monthly income has increased to 1 lakh. Now, Rajesh has not planned or saved money for this purpose or expenditure. In this case, what can he do? Rajesh goes for the balance transfer and top up.

Let us first understand what Home Loan Balance Transfer and Top Up is.

Home Loan Balance Transfer

It is a facility in which a fund seeker can transfer his existing loan from a bank to another bank. The fund seeker usually chooses to go for this facility because the new lender has offered a lower rate of the interest.

Why the fund seeker would opt for Home Loan Balance Transfer:

  1. 1. Lower rate of InterestIt can be possible that after some years the rate of interest of another bank is lower or it may be possible that some of the lenders offer lower rate of interest than other lenders.
  2. 2. Monthly EMI dropWith a lower rate of interest, EMI is also gradually drops.
  3. 3. Credit Score can improveAs the EMI becomes more affordable, the fund seeker can avoid delay in payments. Thus it can improve the CIBIL score.As discussed in the case about Rajesh; suppose his outstanding balance now only Rs. 35 lakh and another lender has provided 11.5 % rate of interest. He can now transfer his outstanding balance from the first bank and pays 11.5% rate of interest for the amount of the 35 lakh. This whole procedure is called Home Loan Balance Transfer.

Home Loan Top Up

When the fund seeker has a regularly serviced loan with a certain bank and he needs an additional loan, it called top up.

Rajesh requires an additional amount of 20 lakh and as per discussion in his example. Along with his increased income;

New eligibility – 54 lakh

Top up loan – 19 lakh (New eligibility – Outstanding Balance)

Thus Rajesh has taken top up loan up to 19 lakh at the rate of interest 11.5%.

So, concluding from Rajesh’s example, we can say that the whole process was beneficial for the fund seeker as well as the banker. Nowadays non-bank lenders are playing a vital role in the financial market, as they are not using traditional credit appraisal system. Our FinTech platform CapitaWorld is one of them. We are the facilitator of the fund seeker and fund provider. CapitaWorld offers a number of benefits including one form for all banks, no upfront charges and much more.

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