A loan against property (LAP) gives you high-value loans at lower rates of interest with flexible tenors. While servicing the loan, one may find another lender willing to extend competitive loan deals either in terms of a reduced interest rate, attractive terms and conditions, better services and more. In such instances, you may choose to shift your existing loan to this new lender in favour of a more cost-effective loan and/or superior loan experience. This facility is known as a loan against property balance transfer or refinancing.
Benefits of a Loan Against Property Balance Transfer
Shifting your outstanding loan balance to another lender offers numerous advantages such as:
Lower Rates of Interest
Most borrowers prefer transferring their loan against property to another lender for modest interest rates, which automatically results in considerable long-term savings.
A smaller rate of interest will naturally reduce the payable EMIs. If you opt for a longer tenor with the new lender, the monthly instalments may become even more affordable.
Improved Credit Score
A loan against property balance transfer lowers the debt burden and makes it easier for you to repay the loan instalments on time. In the process, this helps in steadily enhancing your credit score.
Restructured Loan Terms
Switching lenders enables you to negotiate preferential interest rates and lending terms. You can restructure the property loan as per your priorities and monetary situation.
If you feel your current lender’s services and/or terms lack in any way, you may switch to a more customer-friendly lender who provides timely assistance and support whenever needed.
A huge benefit of LAP refinancing is that it allows you to integrate your existing debts. This way, you can manage your finances efficiently without hassles and carry on with the repayments at revised interest rates.
Loan Against Property Balance Transfer Eligibility Criteria
Salaried employees, self-employed businesspersons and professionals like doctors, chartered accountants, lawyers, architects and others can apply for a property loan balance transfer. The eligibility conditions may differ from lender to lender. However, the requirements are similar to a loan against property eligibility criteria and usually include:
- Individuals must be residing Indian nationals.
- They should be in the age group of 25 to 70 years.
- Salaried applicants must have completed at least three years of service in a public or private firm or a multinational company.
- Self-employed and professional applicants should have their own business ventures or practice for a minimum of five years.
- Loan applicants must have proper sources of income to handle consistent EMI repayments.
Documents Required for a Loan Against Property Balance Transfer
Shifting your current property loan involves a fair bit of paperwork. While each lender’s documentation requirements may vary, they normally request for these documents:
- Proof of identity
- Address proof
- Salary slips of the last three months
- Bank account statements for the past three months
- PAN card
- Aadhar card
- Income tax returns (Form 16)
- Proof of income and employment (for salaried applicants)
- Proof of business, balance sheets, profit and loss statements, etc. (for self-employed borrowers)
- Documents of the property placed as collateral
Things to Remember Before Availing a Loan Against Property Transfer
A balance transfer may be beneficial in certain circumstances. Therefore, one must understand their own situation and whether the move is justified; otherwise one may have to bear additional expenses without gaining any advantages. The following aspects must be kept in mind when considering a loan shift:
Conduct a Thorough Research
A transfer facility lets you make a new start with renegotiated terms and rates. Find out about different LAP transfer options of various other lenders so that you can select the loan scheme that accords a cheaper loan as compared to the ongoing one. You can also use a Loan Against Property EMI Calculator to compare the difference in EMIs and estimate the financial benefits of a loan switch.
Never apply with numerous lenders around the same time. This will backfire on your credit profile, lowering your credit score and making it difficult to find suitable credit deals in the future.
Check Lender Clauses
There may be special clauses in your ongoing loan against property pertaining to balance transfers. Make sure you read them carefully and verify them with the current lender to understand whether this facility can be made available to you and the relevant pre-requisites.
Consider Your Repayment Schedule
Balance transfers work best when a significant portion of your loan still remains to be paid. But if you are close to the halfway mark, it may not be a feasible idea since a large part of the loan has already been repaid.
Assessment of Balance Transfer Request
Your new lender will evaluate your repayment capacity, credit profile and repayment history before they approve your application for a loan shift. In case of a known lender, the scrutiny may be less stringent. But if you apply with a new lender, they will run rigorous checks to ensure you match their lending terms. This means you must maintain a good credit score, manage financial obligations on time and avoid defaults.
Your lender will call for loan approval letters, property documents, interest certificates and more before they agree to foreclose the existing loan. Keep all the necessary documents at hand so that the refinancing process does not hit any roadblocks.
Associated Cost of Transfer
Loan refinancing may have several additional charges/fees attached that might entail payments to the new lender as well as the previous lender. Calculate these costs of transferring your LAP to ensure they do not outweigh the expected savings and defeat the very purpose of initiating a balance transfer.
Even after shifting the property loan, borrowers who have secured LAP for buying a new residence can continue to enjoy the loan against property tax benefits on the loan interest component under Section 24 (b) of the Income Tax Act. They can avail of deductions up to Rs. 2 lakh and claim them at the time of filing their income tax returns each year.