Home Loan Refinance: Reasons, Benefits and Eligibility

The COVID-19 induced global pandemic has brought down the interest rates for home loans to the lowest in history, with interest rates dipping as low as 6.5 percent! Needless to say, this might turn out to be a golden opportunity for those wanting to buy their perfect new home. Even those who have already bought their own home using a bank loan can dip in to take some of the benefits! Want to know how? Read on to know more about a tool often used to get better terms for your home loan!

What is Home Loan Refinancing?

Simply explained, Home loan Refinancing is when one takes a new loan to pay off an old home loan. Now, this may seem bizarre at first and it might leave you wondering “why would anyone do that?”. However, this new home loan is often traded with the old home loan because it is negotiated with a lower interest rate or has better terms and conditions. Let us try to understand what are some of the reasons that make home loan refinancing (or mortgage refinancing) so attractive.

Reasons to consider refinancing your Home Loan :

There can be several reasons why refinancing your home loan might be a great choice. Some of them can be:

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You’re now getting a home loan for a lower interest rate than your previous one: Let’s say a new lender is offering you a lower interest rate for a home loan along with low switching cost. In that case, it would make a lot more sense to pay off the older debt using the loan and continue to pay lower interest rates. Remember, even a dip of 1 percent helps considerably when we’re speaking of an amount ranging from several lakhs to crores! If your credit score has improved, preferably above 750 , you may now be eligible for even better loans! The same goes for rise in income level and paying off existing debts other than the home loan.

You’re getting better service from another lender: As more and more private banks pop up, the competition between these banks is increasing, thus encouraging them to provide better services like digitized and shortened processes, closer branches helping with proximity to each customer, lower account management costs and higher savings interest rates. These are some great plausible reasons to refinance your home loan, aren’t they?

An opportunity to negotiate details of your loans: This may be the perfect opportunity to negotiate details of your home loan agreement that you never liked, like your payment terms, smaller or longer tenure, smaller EMIs, better customer service, anything! The world is your oyster!

Benefits of refinancing your Home Loan

The ability to take action is often met by great rewards, even in the case of home loan refinancing. The main benefits of refinancing your home loan can range from any of the following depending on your income,credit score, negotiation skills and more:

• A lower interest rate
• A shorter tenure
• A smaller monthly EMI
• Better customer service
• Larger savings that you can spend or invest, according to your liking
• Being debt-free sooner

Eligibility for a Home Loan Balance Transfer!

Now, this might sound very easy but here are some things that you need to be cautious about. Every time you switch from one borrower to another, you are charged a switching cost or a processing fee. You can also use a refinance calculator if math isn’t your strongest skill!

Find the lowest interest rate your current lender can charge you: Now, before switching, try to negotiate a lower interest rate from your current lender only, as that would be the ideal scenario where you will save a lot of processing fees with the same bank.

Try to negotiate a lower interest rate with other lenders: Once you have that number, you can also go around and ask other banks what interest rate they are ready to charge you, given the recent changes in your credit score, or income or other circumstances.

If the new interest rate is lower than your old one, negotiate the processing fee: Keep the golden rule in mind: Lower interest rate and switching fine, saves you from multiple EMIs! You have to make sure that your switching costs along with the lower interest rate is cheaper than what you would have gotten at your older lender. If that’s a yes, you are fine to go ahead with the switch!

Last, but not the least, read all terms and conditions properly: Read all your new Terms & conditions properly. Is there a clause that stops you from repaying the loan at one go and rewards dragging the loan to several years, thereby increasing the costs? Is there any other clause that might not be suitable for your scenario? Remember, the starting is the best time to negotiate these terms, and use this to your best advantage!