Moratorium on the equated monthly instalments (EMI)of a person may not be able to switch the loan to another lender offering a lower interest rate, and it is likely that the application may be rejected.
Based on the credit policy and risk assessment of the lender, not all balance transfer requests made by borrowers who have opted for moratorium may be sanctioned by the lenders. This is because the lender will assume that borrowers who have opted for the moratorium are undergone cashflow issues. So unless they can convince the lenders that their cashflow problems have been solved, it may be difficult to get a balance transfer done. Transferring a loan to a new lender offering lower interest helps in saving interest costs.
A moratorium is generally availed by borrowers who are facing cash flow problems. “As adequate repaying capacity or income source is a need for approving loans, the new lender may wait for the end of the moratorium and restarting the repayment for giving a loan to such borrower. No regulation stops any customer (including those who have opted for the moratorium) to go for balance transfer of their existing loan,” said Babu K A, senior vice-president, Federal Bank.
Generally, people go for balance transfer of loan in case of floating rate home loans as there are no loan prepayment charges. Also, in case the rate of interest from the new lender is at least 50 basis points lower and the remaining term is 10 years or over, it can result in substantial savings on interest. For example, a borrower has an outstanding loan of ₹50 lakh at an interest rate of 7.4% and the remaining term is 15 years. If another lender offers him 50 bps lower interest rates, he will save about ₹2.53 lakh in interest outgo. One bps is one-hundredth of a percentage point.
Those who have opted for EMI moratorium, the interest cost would have gone up further due to increased tenure and compounding of interest during the moratorium period. Therefore, for such borrowers, opting for balance transfer may help in saving on interest costs.
As the moratorium ends on August 31st, a borrower can apply for the balance transfer after a few months of repaying regular EMIs. This will help in proving the repayment capacity of the borrower to the new lender. Borrowers can also opt for the restructuring of the loan if they are facing difficulty in paying the EMIs.
