Reasons to Refinance Your Home Loan
Should you consider refinancing your home? While it is your choice, it usually makes complete sense to opt for the best refinance option. Refinancing is certainly not a solution that is ‘one size fits all. However, with substantial consideration, you can simply make an informed choice. One of the crucial benefits of home refinancing is that it provides you with an opportunity to have suitable loan terms and conditions at a lower monthly repayment.
In case your mortgage comes with a high rate of interest or if you are repaying over 20 per cent of your income as monthly payments, then opting for the refinancing option might be a good way. However, many individuals do not know all about the expenditures linked with refinancing and end up ultimately regretting their decision later. Before you get into the process, know here how it functions.
What does refinancing indicate?
If you are one of those, who think you have availed the best home loan in India at the lowest rate of interest, note that rates of all lenders are prone to change, and in the future, you do have an option of availing yourself a lower rate on your existing home loan. Wondering how? It is possible through refinance option. The home loan refinance option is only provided to the existing home loan for salaried person or those who are existing self-employed individuals. When you refinance your home loan, you are crucially availing of a new loan and replacing your existing loan, generally under better conditions. For instance, refinancing your loan permits you to get the benefit of lower rates and extended tenure, which means that you can easily repay less each month.
There are certain things you must note if you are factoring in refinancing your home.
Firstly, you will require qualifying for a new home loan. This means mitigating the lender’s parameter, which might be distinct from your present lender. You will even require having sufficient equity in your home to qualify. If you qualify for the refinance option, it is necessary to compare all the offers with multiple lenders to fetch the best deal. Ensure to compare the rate of interest, fees and terms and conditions to get the option that best matches your requirements.
You must think about your goals. And what are you hoping to get by availing home loan refinance option? Do you want to reduce your monthly repayments, or do you want to repay your loan quickly?
Post all these measures, if you consider the refinancing option may be the correct option for you, then talk to your bank lender to view what options you are getting.
Also Check: Best Home Loan in India
How does the refinancing option work?
There are certain things you must consider before refinancing your home loan. Firstly, ensure to review your credit profile to see if it is good enough to qualify for a better rate of interest. A strong credit score will endow you with the confidence to refinance the loan at better interest rates.
Next, shop around online and view what interest rates you qualify for and then compare the refinancing costs with the savings you get from a lower rate of interest. Thirdly, you must speak with the current lenders to check if they can provide better rates. This will endow you with an idea about the process and if refinancing is the correct option for you. The final measure is to opt for the pre-approved or regular loan. However, ensure to compare the refinancing costs with the savings that you will get from a reduced rate of interest. If the savings are inadequate to cover your costs, it might not be worth refinancing.
In case you are unsure if refinancing is the correct decision for you, discuss it with your financial advisor. They can assist you in better understanding all the advantages and disadvantages linked with refinancing and assist you in making the best decision for your financial situation.
Four crucial reasons for refinancing your home loan
There are various reasons why you may want to opt for the home loan refinance option. Let’s look at some of the crucial reasons.
Your present loan has a high rate of interest.
The most probable reason to refinance is to effectively save money on the interest constituent. If you can reduce your rate of interest, even by a slight of per cent, you will be able to save a considerable amount on interest over the loan tenure. In savings, it may add up to lakhs of rupees. In case your present mortgage has a high rate of interest, refinancing can assist you in reducing your monthly payouts. This is particularly true if your rate of interest is at a historic low. For instance – if you hold a fixed rate mortgage with a 9 per cent rate of interest and the ongoing rate is 7.2 per cent, then refinancing may save a lot over the loan tenure. A 20-year home loan of Rs 80 lakh with a 9 per cent rate of interest, for instance, would cost nearly Rs 90 lakh in interest during the repayment tenure.
If the rate of interest falls to 7.2 per cent, you will have to save approximately Rs 20 lakh over the repayment period of 10 – 15 years. Even a slight rate difference may assist you in saving massive money and endow you with the much-required financial relief.
You want to make changes to your loan repayment tenure.
The next reason to refinance your loan may be to either increase or shorten your loan repayment tenure. The shorter the loan tenure, the lesser interest you will require repaying on loan and the faster you will be free from debt. Few lenders may also permit you to make changes to your mortgage terms at the time of loan refinancing. However, on the other hand, if you want to reduce your monthly payment burden, then you can also increase your loan tenure by opting for the refinance option. However, note that an increase in loan tenure will make you incur a higher overall interest cost.