Most homeowners seek to refinance their existing loans when interest rates fall, as they have recently. While home loan refinancing can save you money on interest and help you pay off your loan faster, it isn’t always the best option. Without taking into account all of the fees, refinancing may cost you more than it saves you.
What is a home loan refinance?
The process of moving an existing house loan from one lender to another is known as refinancing. The procedure is straightforward. The borrower submits a home loan refinance request to the new lender. Your outstanding debts to your current lender are settled by the new lender. The loan EMIs are subsequently transferred to the new lender, who has better terms and conditions. The EMI can be calculated using a home loan EMI calculator tool.
Reasons to refinance
Reduction in interest rates
This is the primary reason why most homeowners switch lenders. If you locate another lender with lower interest rates, for example, it makes sense to transfer your loan to them in order to minimize your interest costs and, as a result, your EMI. Floating-rate loans account for the vast majority of home loans. When interest rates fall, however, not all lenders reduce the interest rate on current loans. As a result, competing lenders may be able to give you a better deal on your current house loan. In such instances, refinancing your house loan to lower your overall loan cost is strongly suggested.
To change from fixed interest rate to floating rate
It is possible that home loan rates will begin to fall after you have chosen a fixed-rate loan. To save money on interest, you might consider switching to a floating rate loan. If your current lender won’t let you use the floating rate option, you can refinance your loan with a different lender.
To get shorter loan tenure
You may have chosen a long loan term at first; however, if your financial situation has improved, you may choose to shorten the loan term.
To avail more favorable terms and service
If your current lender is not providing you with sufficient service, you may want to explore refinancing your loan. If you discover the lender’s service standards are subpar or that you did not get the best bargain, you can explore switching lenders.
When you want to borrow more
Because of modifications in the design or specifications of the house, your finance demands may have grown after accepting a loan. In this instance, refinancing may enable you to obtain additional funds through a larger loan.
Factors to consider before refinancing
- If you’re thinking about refinancing your home loan, you should do so in the early years of payments. Shifting the loan to a lender in the later years of repayment is not recommended because you will have paid off the majority of the interest component.
- Be aware of any fees associated with the transfer, such as the processing fee, valuation fee, and other costs. Go over all of the procedures you went through with your previous lender, such as property verification, etc.
- You must obtain confirmation from your existing lender that your loan documentation will be sent to the new lender within the specified time frame. If you have been late on your EMI payments, the new lender will not approve your request for a home loan refinance.