A loan to buy a house often spills for over 20 years and is keenly watched by the borrower. This is because a sizeable amount of his income goes in servicing it. A home loan involves a substantial amount of money and hence the interest rate on the product is a matter of concern for every borrower.

Loans are taken either to fulfil regular expenses which are called hand loans or personal loans. Loans are taken for a long period for purchasing capital items, in most cases house, and we call them housing loans. The loan period can vary anywhere between 10 to 25 years. Being a long period there may be a period when one can take advantage of interest rates option of loan transfer. There are a few suggestions in this regard.

First and foremost the reason for transfer should be clear to the loan taker as to why he is transferring. In fact, a home loan transfer makes sense only if the loan taken is at a higher interest rate than its counterparts in the market, and it is required to lower the EMI and improve cash flow.

New lender makes it sound easy and presents a rosy picture but it is always advantageous if the current lender gives options of flexibility. The flexibility can be had provided, loan is being repaid in time and no bouncing of cheques has taken place.

As it is said nothing is free in this world, transfer of home loan comes at a price as well. Processing fee shall be charged by the new lender and stamp duty expenses shall also be charged. In many cases the extra amount payable may eat away advantages which can be got by transfer at least for one year period.

So it would be better to remain with existing lender and try to work out a via media approach. The loan transfer process is a long and time consuming one and it cannot happen immediately. There are legal formalities to be completed and the original process almost has to be redone again.

When can loan transfer be an advantage?
In the initial stage of loan it can be advantageous to transfer loans. As in early stages more interest is paid and less of principal amount is paid. If only a few years are left in the servicing of home loan, incurring additional expenses with a balance transfer, not to mention the hassles it involves with paperwork and the time taken, it may not be worth. Further if the property is to be sold then there is no point in transferring the loan.

Reason should be clear
In conclusion, it would be a rational decision to opt for transfer only when the present lender is not willing to accommodate the changes in the terms as required by the loan taker. If there is any other reason other than economic reasons to transfer of loan, it may prove to be a disadvantage. On the other hand, if loan is of fixed interest nature, options of transfer to floating interest rate can be opted for, if the transfer makes sense economically.