What's More Beneficial? Home Loan Balance Transfer or Balance Transfer with Top-up Benefit
By Anupama Deshpande | Sep 21, 2018

Naveen, a software professional working in a IT Company, had availed a home loan of Rs 20,00,000 at 10% for 20 years from Bank "A" 5 years back. Now he has learnt from one of his relatives that home loans are being offered by Bank "B" at 8% at present. He thinks that if he switches his outstanding home loan amount to Bank "B" at interest rate of 8%, he can save a lot in next 15 years.

Current loan repayment schedule of Naveen is as follows, where he has an existing home loan of Rs 20,00,000 with Bank "A" at 10% interest and 20-year loan tenure:

• Home Loan EMI of Rs 19,300
• Payable for 20 years or 240 months
• Total interest payable Rs 26,32,104

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Till date (in last 5 years), he has already paid loan of Rs 2,03,951. Remaining tenure is 15 years or 180 months. The outstanding loan is Rs 17,96,049.

He went to Bank "B" to know the procedure of balance transfer of his outstanding loan. The banker has given him two options:

Option 1: He can balance transfer the amount at 8% interest and pay reduced the EMIs for next 15 years, EMI reduced due to lowering of interest from 10% to 8%

Option 2: He can avail top-up loan with balance transfer and keep paying same EMI for next 15 years, he can use top-up loan amount for any of his personal use such as buying some asset, for education of children, home renovation, etc.

We give the detailed calculations of both the alternatives:

Option 1: Balance Transfer with reduction in EMIs:

• New loan amount Rs 17,96,049 (balance outstanding in the loan with Bank "A")
• New EMI is Rs 17,164 (less by Rs 2136 per month than the EMI with Bank "A")
• New tenure is 180 months which is the same as the balance tenure of the loan with Bank "A"
• Overall saving of Rs 2136x180=3,84,480 for the entire tenure

Through this option, you can save Rs 3,84,480 of interest by opting for balance transfer of your outstanding home loan to Bank "B".

Option 2 : Top-up Loan by retaining the existing EMI:

• New loan amount is Rs 20,00,000 (as against the balance outstanding in the loan with Bank "A")
• New EMI Rs 19,113 (as against Rs 19300 in the loan with Bank "A")
• Tenure is 180 months (same as the balance tenure in the loan with Bank "A")

Through this option, have additional Rs 2,03,951 in your hands which you could use for renovation or some other improvement to your home by opting for balance transfer of your outstanding home loan plus top-up loan to Bank "B".

It is very tough to answer whether balance transfer is a better option or top-up with balance transfer. It is a subjective matter and depends upon the requirement of the borrower.

In case the borrower wants to lessen his monthly financial burden by choosing the option of reducing EMI then he can select the first option i.e. just apply for balance transfer without top-up, but in case, he needs funds to fulfil any requirement then he should opt for the second option i.e. balance transfer with top-up facility.

The benefit of availing top-up facility with balance transfer is that he will get additional amount at comparatively lower interest rate than that of other types of loan such as personal loan or business loan. At the same time, his EMI amount is not increasing even if he has availed the extra money due to the benefit of getting lower interest rate offer with the balance transfer.

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