Home Loan Refinancing: Things to Know
So, are you tired of your of home loans by paying high interest rate and now thinking of ways to save interest? Are you dissatisfied over the Home Loans running currently with your bank and are thinking to quit it over unsatisfactory services and fees? So, here’s the time to make a final call on your decision and seek a better a home refinance.
What’s a home loan refinance?
Many borrowers might not be accustomed to the term ‘Home Loan Refinance’. A home loan refinance is a process, which allows a borrower to shift to a new lender from an existing one. A home loan refinance allows a borrower to shift to a new lender in search of better services, better deal at home loan interest and to avail many other benefits.
How does Home Refinancing help a borrower?
A Home Refinancing offers several perks to the existing home loan borrowers, who already have a home loan, present with other lender. Here are benefits as offered by a home loan refinancing, compelling enough to go for the home loan refinancing option:
Saving on Interest Rate: The most common reason as seen in India, for home refinancing is the motive to the saving on the interest rate. A home refinancing offers the person to shift from an existing high rate of interest to the cheaper rate of interest as offered by other lender. Thus, a natural temptation to opt for the better deal on the interest rate is what urges the person to the home loan refinancing. As, a result of this, a person can save quite a handsome amount being paid as interest and at the same time, the EMIs, which the borrower was paying each month, come down to some extent.
Since, a home loan is a long term responsibility, any minor change in the interest rate results in saving a very good amount on the entire home loan. Since, the home loans are a long term process, there is always a chance that the home loan interest rates often get reduced, but it has been seen that the banks tend not to decrease the home loan interest rates for the existing borrowers accordingly, and even if they decide to trim down the rate, it’s often a delayed process and the resulting trim down is not as per the industry standards.
Thus, this particular scenario can be a compelling reason, better to switch to a new lender, who is standing on the doors with the better deal on interest rate.
Switching from floating rate loans to fixed loans or vice versa: Since, a home loans allows the customers to go for the floating or a fixed rate of interest, there are customers who may be into the floating rate of interest, while some are those who might be into the fixed rate of interest. However, over the times, the preference of the borrowers may change and there a few sections, who consider switching from the floating to a fixed rate of interest, might be a better deal for them, while some may be belonging to the category, who thinks vice versa. In such a scenario, the Home Loan refinancing is the only option left with them. With the home loan refinancing, the borrowers have a golden chance to save their money being paid as EMIs each month.
If you consider a scenario, where a person took a home loan at a fixed rate of interest of 12.25% for 20 years and after handling it for 2 long years, he finds a floating rate of interest at other bank with the interest rate of just 9.75%, the borrower have a chance to cut short his EMI by more than 10% and additionally can save around 15% to 20% of the total interest being paid in the entire duration of the home loan. However, the exact calculation can be made, once all the details of the home loan can be furnished. Even, if you consider the additional charge to be paid for the home loan refinancing process, the amount incurred is negligible in comparison to the final amount; you need to shell out or even considering the drastic lowering of your EMI.
Top Up Loan Opportunity: With the home Loan refinancing, the existing home loan borrowers, are offered an opportunity to the top up loan or the additional loan.
Considering a scenario, where a person bought a home worth 50 lacs, and got a home loan of 40 lacs, but after carrying his home loan responsibility, he is left with 30 lacs to be paid, while in the same time, the overall value of the home has risen to say 80 lacs (a loan of maximum 64 lacs can be issued in such a case). With the existing home loan lender, you are not entitled to any benefit. However, under the home loan refinancing scheme, you can transfer your existing home loan of 30 lacs and additionally you may get (64-30) equal to 34 lacs as additional funding. Thus, the Home Loan refinancing is a way to accumulate more funds for you which can come to the good use.
Unsatisfactory services of the existing Bank: There may be several reasons, to look towards the home loan refinancing, and unsatisfactory services are one of those. What are the services, which might tempt to for the home refinancing decision? The services like issuing a home loan statement not on time, bad customer care services, no interest rate changes (especially lowering of interest rates), are just some of the compelling reasons for a borrower to look towards the home loan refinancing option.
Financial condition changed: While, the above reasons can be compelling reasons to look for the home refinancing, which provides you interest saving and with other benefits, this might a forced one for you. In case, your financial conditions have changed, owing to decrease in the income or burdened with additional responsibilities and you are looking for the longer loan tenure in order to adjust your EMIs, you can go for the home refinancing.
Additionally, if you have gone prosperous since taking a home loan and want to shorten the loan tenure, as now you can cover higher EMIs, you can do it by refinancing your home loan. Since, the existing bank, doesn’t offer the changing of home loan tenure, the only option left for you is to look for some other banks, with the better deal and go for the home loan refinancing.
Things to look for before home loan refinancing
Watch out the below, before opting for a home loan refinancing:
Know the terms and conditions of the existing banks at which your home loan is currently running.
Know the processing charges, fees and other restrictions as available with the current bank
Always look for the loan switch in the early period of your home loan, may be in the initial 2-3 years and not later. The reason? During the initial period of your home loan, you tend to pay most of the interest part of your existing loan.
Collect all relevant information of the chosen bank, where you would like to go for the home loan refinancing. Check their customer services, and all other offerings, which they are ready to offer you for Home Loan refinance.
Check all charges and other fess with the chosen bank and seek a complete clarity over this from them
Make sure that your current lender transfers all your relevant documents to the new lender well on time
Pay off all your EMIs well on time, to the existing lender, so that the dues at the time of refinancing are not present.
Eligibility for Home Refinancing
There are certain eligibility criteria for the Home Refinancing, which are listed below:
A certain number of EMIs needs to be shelled out before you can switch for Home Refinance
A Clear history of around 1.5 years with all dues clear on your current loan
The Minimum age of the applicant must be 21 years while the maximum should not exceed 60 years
A work experience of a minimum of 2 years and the last 1 year spent in the current organization.
Documents required for the Home Refinancing Process
There are certain documents, required to complete the process of the Home Refinancing process. These are listed below:
Fully completed loan application form
Proof of address
Proof of income
No objection certificate from the existing home loan lender
Home Loan repayment History
All relevant documents concerning your home, which are in the existing bank’s custody
Any other documents as issued by the existing lender over the credit history and repayments
Steps for the Home Refinancing
The steps required in the home loan refinancing are a simple one, with the conditions applying, if your existing lender is a cooperative enough to hand over the needed documents to you and your chosen lender. Here are the below steps for the home refinancing process:
Request your current lender for the documents to refinance your existing home loan
Get a consent letter and submit it to the new lender
New lender clears the outstanding loan to the old lender
The old loan account is now closed.
The new account with the new lender is now functioning
All the relevant documents will be furnished ot the new lender as required
Advantages of the Home Loan Refinancing
As discussed above, during our discussion in the ‘How does Home Refinancing help a borrower?’ Section, here are the benefits with your Home Loan Refinancing in a nutshell:
You may end up with the lower EMIs
The rate of interest gets reduced
The terms on home loan can now again be negotiated with the new lender
The tenure of home loan can be changed
You can save a good amount on interest to be paid
You can get an additional finance on your home loan refinancing
Better customer services can be availed
Hassle free process with modern way of working
Don’t rush into the decision
The Home Loan refinancing has offered a way out to the borrowers from a bad decision, they made in the past, or even to get into a better deal, they can now get.
But the decision to go for the home loan refinancing must not be made, in a hurry. You must take a note of all points, which aren’t going in your favor with the existing lender. Make a research with the new lender and check the offers and deals, which the new lender is offering to you. Also, always remember that the home loan refinancing deals are quite different from the actual home loans deals as offered by the new lenders. Thus, seeking clarity on the offering on your home loan refinancing is the most important step you must carry out with different interest lenders.
Evaluate all the salient features and USPs of the home loan refinancing and how the home refinancing will actually help you. Even, you can discuss with your current lender over the issues, you are having in order to sort out the issues, especially if you are only dissatisfied with their service and not looking towards other aspects.
The home loan refinancing, in most of the cases, is the better opportunity for the people, who for various reasons of their own, want to make a switch from an existing home loan lender to the new lender. The circumstances may have changed over the years, since you borrowed a home loan from an existing lender and now you are looking for the different deals, either it is lowering of your EMIs, or loan tenure and whatever, the prime reason may be.