Read on to know more about what home loan refinancing is and four reasons to opt for a loan transfer.
What is Home Loan refinancing?
Home loan refinancing or home loan balance transfer is a facility that allows you to switch lenders. By availing of this facility, you can transfer the remaining balance of your existing home loan to another lender.
A borrower may choose a new lender for varied reasons. For instance, the new lender may be offering better terms or more competitive interest rates. Today, most lenders offer home loan balance transfer facilities so that you can save on your total cost of borrowing.
Four Reasons to Refinance a Home Loan
Home loan balance transfer facility offers many benefits if you decide to avail of this facility. The following are some of the benefits that you get to enjoy with a home loan balance transfer:
Lower Interest Rate
While it is advisable to research thoroughly when looking for a lender for a home loan, you may miss out on a better deal. It is possible that the rates drop drastically a few months or even a year after you availed your home loan, and this drop can save you a lot of money.
Thankfully, you can still enjoy those benefits with a home loan balance transfer facility. Remember, home loans are a long-term commitment, and even a 1% drop in the interest rate can result in significant savings over the long term.
Better Loan Terms and Repayment Tenure
In instances when the current EMIs become unaffordable, it is smart to look for a new lender that may offer better terms. In this case specifically, it would mean a longer repayment tenure. This is because longer repayment tenures on a home loan result in EMI payments of lower amounts.
A home loan balance transfer facility will allow you to transfer the balance to a lender that may offer you a longer tenure. However, note that if you choose a longer tenure, the total interest you will pay towards your loan repayment will also be higher.
On the other hand, every lender offers unique features on their home loan facility and the fees that they charge may also differ.
Shifting your existing home loans can also allow you to enjoy better terms on your new home loan agreement. While transferring your existing loan, you can choose a lender that offers features that are financially suitable for you.
If you are in need of excess funds in order to furnish or renovate your home, you can opt for a top-up home loan. A top-up home loan is a facility that lets you apply for an additional loan on top of your existing home loan.
While some offers may not offer a top-up facility, you can choose a lender that offers this facility through a home loan balance transfer.
Foreclosure and Part Payment
When you decide to foreclose your home loan or make a part payment, many lenders charge you fees associated with them. Different lenders charge foreclosure and part payment fees ranging between 0.5% to 2% of the outstanding balance.
On the other hand, some housing loan corporations also waive these fees. In case you wish to prepay your loan, you can shift your existing home loan to a lender that levies lesser or no foreclosure or pre-payment charges.
In general, refinancing a home loan is the way to go if you wish to reduce the cost of borrowing. It enables you to choose a lender offering better terms and lower interest rates. However, before you do so, carry out a cost-benefit analysis in order to find which home loan option best suits your financial situation.
Here, a home loan EMI calculator is a helpful tool to use, as it helps determine your monthly outflow to decide which lender to choose. Some lenders may even have a dedicated balance transfer calculator, highlighting exactly how much you stand to save.
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