Refinancing your home loan is swapping your current loan for a new loan with different financial terms. Once you choose a new lender for refinancing, it will not only clear any outstanding dues with your first lender but will also take over the outstanding loan amount.
Why Is It Needed?
People refinance their home loans to fetch better interest rates and a flexible repayment plan. Here are a few more benefits:
To Get A Better Deal: Timely refinancing can turn out to be a good deal for you when the opportunity presents itself. With the country’s largest national bank launching a new home loan scheme linked to the repo rate, many customers now may be tempted to consider transferring their loans if they get a lower interest rate. It would be wise to keep comparing various offerings from different banks and refinance your loan through a bank which has the perfect loan product for you. Also, if your home loan is based on a fixed rate, you should consider refinancing it to enjoy the benefits of floating rates.
Lesser monthly payment — Most people refinance their home loans when interest rates are low, as it lowers their borrowing costs resulting in lower EMIs and therefore improved cash flow.
Get A Longer Loan Tenure — With a dip in interest rates, some even consider refinancing to lengthen the term of their loan which means smaller EMIs even if that means having to pay more interest over the long term.
To Get Better Service: People often refinance their loan when they are not satisfied with their existing lender’s services. Not getting loan statements on time or receiving prompt responses to your loan-related queries are some reasons that may push them towards a more responsive lender.
To Get A Home Loan Suiting Your Financial Situation: You can switch your home loan to a different bank if there are unexpected financial situations like a decrease or increase in income. You can go for a longer tenure if your income has decreased or may choose a shorter tenure to pay off your debt quickly because your income has increased. However, weigh all the pros and cons before refinancing your loan in such a scenario.
To Get More Funds: A home renovation or a redesign may increase your funding needs. Refinancing would allow you to go for a bigger loan than the existing one from a new bank.
Therefore, refinancing your mortgage could prove to be a great financial move in some circumstances. While choosing a new lender, do factor in the associated costs of the refinancing such as preclosure charges, and processing fee for the new loan.
The writer is CEO, BankBazaar.com