When you take a home loan to buy a home, you are not satisfied with its interest rate and sometimes you may feel that you are paying a higher rate of interest on your home loan than the current market rates. Huh. In such a situation, you can choose to refinance a home loan instead of regretting your decision or feeling cheated on yourself. Information about what is refinance and how it can be done and other things related to it is being given through this article.
What does refinancing a home loan mean??
Home loan refinance or home loan balance transfer is the facility through which the existing loan is repaid by taking a new loan. Home loan borrowers opt for this facility only if they want to take advantage of the low interest rate or to increase or decrease the term of their loan. Along with these, there are many other reasons why people choose the option of home loan transfer. You can get many benefits by refinancing a home loan and that is why you need to plan carefully while opting for such facility.
Refinance a home loan?
The easiest way to refinance your home loan is to transfer your existing loan to a new lender. But before doing this, you should take market information and understand through research whether it is beneficial for you or not. Compare the loan offers offered by various lenders and select the one which is offering lower interest rate and better terms. After this, all the dues of your existing lender have to be settled and transfer your outstanding loan amount to the new lender. To transfer your loan to the new lender, submit all your documents and take care of other formalities.
Keep in mind before choosing to refinance a home loan
Before choosing to refinance your home loan, you should consider the following factors –
- Credibility of the new lender – Make sure the new lender is reliable before starting the refinance process. Check the background of the lender thoroughly to ensure its credibility.
- Balance period of your existing loan – If you have only a few years left to pay off your home loan, then refinancing may not be a good option for you. A better option is to refinance during the first few years of the loan.
- Overall cost of refinancing a home loan When you want to reduce your interest payments, refinancing is a better option. However, if the overall cost of refinancing increases your financial burden further, it is better not to choose this option.
- New loan terms – Choose the option of refinancing a home loan only if the terms of the new loan are favorable to you and you are more likely to benefit from it.
Reasons to refinance home loans
To understand why borrowers choose to refinance home loans, you can consider the following situations –
- For low interest rate – When people find an avenue to save interest costs by taking a loan at a lower interest rate, people often consider refinancing their home loan.
- To shift from fixed rate to floating rate – By taking home loans at a higher rate, sometimes borrowers feel that they are paying interest at a higher rate even after the interest rate is cut. In such cases many borrowers want to switch their home loan to floating interest rate to avoid additional interest payments. If your existing lender does not offer you this kind of facility, you can consider switching.
- To reduce the loan term – Home loans are usually given for a period of 20 to 25. If your financial situation changes over time, if you feel that you can repay the loan in a short time, then you can choose to refinance your home loan.
- To reduce EMI – Sometimes people want to reduce their monthly EMI due to additional family obligations or expenses and therefore look for long-term repayments or loans with lower interest rates.
- To take advantage of better terms or good customer service – Sometimes after taking a loan people feel that their lender’s customer care services are not satisfactory or you may feel that you can get better services elsewhere, then in such circumstances, you can transfer your loan to another lender May consider switching.