Refinancing your Home Loan makes sense when the new lender –
- offers a lower rate of interest
- offers a higher loan amount
- permits switch from fixed to floating/adjustable interest rate
- permits reduction in loan tenure
- permits reduction in EMI
- offers better terms and service
Don’t refinance if –
- costs don’t justify it
- you are nearly through with your loan repayment
In life, we always look forward to progressive options - a better home, better car, better job etc. Life would stagnate if we did not look at bettering what we are or what we have.
Optimising your home loan
As with everything else in life, it is natural that you are always on the lookout for an efficient home loan option than the one you have on hand. Even if you have already taken a home loan, it is only natural that you keep yourself attuned to the recentdevelopments and industry trends. The moment you come across a better option, youwill want better terms on your loan. But is it possible to do so or are you stuck with the existing loan for its tenure?
Fortunately, you have the option of home loan refinance. Refinance is transferring your outstanding loan balances to a new lender. Clearly, the new loan should be available at better terms than the existing one.
The simplest way of refinancing is to get your new lender to settle the dues with your existing lender and take over the outstanding loan amount. Once you have decided on a lender who offers better terms and conditions, you may complete the documentation and other formalities upon which they would pay off the loan to the old lender and takeover the outstanding loan amount. You would then start paying EMIs to the new lender.
When should you opt for home loan refinance?
There are six key situations when home loan refinance should be considered:1. When you get a lower rate of interest:
You wouldn’t want to pay a higher interest rate if you have the option of moving to a lower rate.2. When you want to switch from fixed rate to floating or adjustable rate of interest
After you have opted for a fixed rate loan, it may so happen that interest rates start declining. In such a case, you will want to switch over to a floating rate loan to save on interest cost. If your existing lender does not permit you to avail of the floating rate option, you can refinance the loan by switching over to another lender.3. When you want to reduce the home loan tenure:
Initially, you may have opted for a long tenure; however, if your financial position has changed for the better, you may want to reduce the tenure of the loan.4. When you want to reduce the EMI amount
Due to a change in circumstances, you may want to lower your monthly commitments and hence look for lower rate and/ora longer tenure.5. When you want to avail more favourable terms or better service on your home loan
After taking disbursement of the loan, you may find that the lender’s service standards are below par, or you did not get the best deal. In such cases, you can consider switching over to another lender.6. When you want to borrow more
After taking a loan, your funding needs may have increased because of changes in the design or specifications of the house. In this case, refinance could help you avail additional funds by way of a bigger loan.
To conclude, refinance is a tool which allows home loan customers to smartly manage changes in circumstances to their advantage. Timely use of this tool will help you reduce the cost of your home loan.
Also Read - Home Loan Down Payment