Many home loan borrowers across the globe are stressed by the EMI burden. You would have heard many home loan borrowers mention the term “Home Lan Refinancing” when they are trying to reduce their EMI burden. If you plan smartly and take healthy financial decisions, clearing your home loan before the tenure of the loan is not be a difficult task. Before we explore why you must consider refinancing your mortgage, you must be aware of what home loan refinancing means.
What does home loan refinancing mean?
Home loan refinancing is when you avail a new home loan from a lender at a lower interest rate to pay off your existing home mortgage. Borrowers opt for home loan refinancing for various reasons. However, the primary reasons to switch home loan lenders are to get a lower interest rate and save some money or to avail a top-up loan on the original home loan amount. Besides these two, there are many other reasons such as to consolidate the loans or because of the poor customer service offered by the existing lender.
When you must consider home loan refinancing
As mentioned earlier, there are many reasons why one would choose to refinance their home mortgage. However, the most important and compelling reasons are:
To save on interest
This is one of the most common reasons many borrowers opt home loan refinancing. The main objective and benefit of home loan refinance is to save on interest by moving your existing loan balance to a new lender offering a lower interest rate. When the lending rate in the economy falls, not all banks and lenders reduce their home loan interest rate. However, if you take advantage of the situation and choose a new lender who offers a lower interest rate to refinance your loan, you can save on interest in the longer run.
If you want to change the interest type from fixed to floating
If you have a fixed interest rate home loan, and the floating interest rate in the economy falls, you can switch to a new floating rate home loan and save on interest cost. Before you choose a new lender, make sure you talk to your existing lender and request to change the type of interest charged on your mortgage.
Reduce the tenure of your home loan
Initially, when you signed your home loan agreement, you could have accepted a longer home loan tenure. The tenure of your loan cannot be changed after you accept the loan offer. If you want a longer loan tenure or reduce the tenure of the loan, you must opt for a home loan refinance. If your financial position has changed for the better, you can choose to refinance your home loan and reduce the tenure. This way you will pay high EMIs and pay off your loan faster.
Reduce the home loan EMI amount
If there any changes in your financial position and you are unable to afford your home loan EMIs, refinancing is a good option. By refinancing your home loan, you can choose to lower your EMI. You can lower your EMI by choosing a lower interest rate home loan or by increasing the tenure of your loan.
To get better home loan deals and customer service
Apart from the interest rate, there are many other features that must be considered when you avail a home loan. Most people refinance their home loan to get better features such as nil foreclosure fee, lower penalties, or better customer service. If you have an existing home loan and feel your lender’s service standards are below par, you could switch to a lender who offers favorable terms and conditions.
If you want additional funds
If after availing a home loan, your funding needs may have increased. You might need additional funds for home renovations or extensions. In this case, home loan refinancing might help you get additional funds.
4 Things to keep in mind before transferring your loan
Although the process of refinancing your housing loan is a simple process in this day and age, one must be mindful about the process. An impetuous move to transfer the loan may cause more harm than good. Keep the following points in mind before transferring your home loan balance.
It is important that the new potential lender is credible in lending out money and the reduced interest rate offered is not just a promotional gimmick.
Consider all costs
Sometimes it can be easy to neglect costs that are associated with refinancing a housing loan. At the end of the day, you are transferring the housing loan balance to save money. If the costs like stamp paper, documentation charges, processing fee, etc. outweigh the savings you receive, it becomes illogical to refinance your loan.
Quality of service
Sometimes, the service provided by a particular ban can overshadow the marginal savings received by refinancing your mortgage. It is important to do your research on the quality of customer support that a particular lender provides.
Go through the fine print
A lowered rate of interest should not cause an inconvenience to you in future. Reading the fine print of the agreement from the new lender and the existing lender as well will give you all the information required to base your decision on whether or not to refinance your home loan.
Before you opt for a home loan refinancing, make sure you have considered all the pros and cons. Choose home loan refinancing only of it beneficial to you.