With the real estate industry continuously evolving and being ever-dynamic, a trend that has picked up in recent times is home loan refinancing. This essentially refers to availing a fresh loan from a new lender to pay off an existing one. Home loan borrowers often use it to boost their financial health by availing a top-up on the original loan amount or reducing the amount of the EMI’s.
In order to gain the most from this, it is very critical to keep your eyes open on the market, track interest rates and be prudent with the calculations to know precisely how much of a saver it works out be.
Let us look at some other factors how several home-buyers may benefit through this practice.
Lower rate of interest
This is one of the prime reasons for home-loan borrowers to consider refinancing. For example, if your current interest rate is 8.9% and the refinance offers 8.35%, you will be saving money from the very onset of the new loan.
Switching rates of interest
The interest rates might start to decline after you may have opted for a fixed rate of interest. In such a scenario, it will be judicious to switch over to a loan offering a floating rate to save on this interest cost. If the existing lender does not allow this switch, you have the liberty to refinance the loan from another company. This switching from fixed to floating rate of interest is one of the most common reasons why home loan borrowers opt for home refinance.
Change the tenure, EMI amount or opt for better service
Refinancing is a good option in case you want to reduce the tenure of your home loan or reduce the EMI amount to lower your monthly commitments. Also, if you feel the service of the first lender is below par, switching over to a second one might be a good idea.
Additional loan opportunity
Customers also have the opportunity of opting for incremental funding (also referred to as top-up) at the prevailing home loan rates. Experts in the domain opine that it is better to top-up from a new lender only at lower rates; otherwise, it is better to stick to the existing lender. This way, there will be no charges levied for getting the loan refinanced. If the customer’s repayment record is good and the concerned property has appreciated, the existing lender is usually happy to facilitate a loan top-up.
Some quick tips before opting for home refinancing
Early mover: It is always a good idea to elect for refinancing early in the tenure. After 5-6 years, opting for it is not advisable since you would have already paid a large chunk of the interest amount by then.
Clarity on finances: As is the case with any loan, be clear on factors like processing fee, valuation fee
and other charges you will have to shell out during the loan refinancing process.
Be aware of the process: The new lender will treat your refinancing application as a new application; thus, you will have to go through all the formalities before availing of the loan. This includes legal verification of your property credentials, credit record, etc.
Good payment history: A good credit record is mandatory. You will only be allowed the home loan refinancing provided your repayment history is immaculate.