We always look for better Housing Loan options than the ones we already have in hand. Even if we have already taken a loan, staying attuned to the latest industry trends and developments is natural.
When you find a better option, you might want to switch lenders. Fortunately, there’s an option of refinancing a Home Loan.
Refinancing means transferring the outstanding loan balance to a new financial institution at a lower mortgage loan interest rate and better terms and conditions.
But refinancing the Housing Loan is not an impulsive or casual decision. This decision must be taken carefully after examining different factors. Let’s explore five definite reasons for Home Loan refinancing right away.
- Reduced Interest Outgo
One of the most important reasons behind Home Loan refinancing is the lower interest rates the other lending institutions offer. Moving to a lower interest rate cuts down the monthly EMIs and the total interest payout.
Reduced interest cost tempts most borrowers to switch to a lower interest rate Home Loan provider.
Most Housing Loans are subject to flexible interest rates that change according to market rates prevalent in the economy. But some loan companies wrongfully maintain the original rate even when the market rate reduces. While others take more time to adjust their interest rates as per market fluctuations.
Those who are unhappy with how their lender handles the interest fluctuations should consider refinancing their loan to another lender with a better reputation in this aspect.
- Switch the Interest Rate Type
Some Home Loan borrowers are stuck in the interest rate type they selected in the loan agreement. They could be paying higher floating interest rates than the fixed rate, or their fixed rate is higher than the economy’s overall base rate that moved south recently.
Under such circumstances, refinancing the Home Loan seems legitimate, given the savings are higher than the new Home Loan processing fees they must pay for the switch. For the pre-closure of their existing loan, borrowers must pay several statutory charges. By refinancing, such fees and charges should be negated.
- The Facility of Top-Up Loan
Besides a lower mortgage loan interest rate and revised loan tenure, another potential reason for loan refinancing is the top-up loan facility at the prevailing interest rate.
For instance, an individual borrowed a loan of Rs. 30 Lakh to purchase a house worth Rs. 40 Lakh five years ago. Now, after paying Home Loan EMIs consistently, the loan amount stands at Rs. 20 Lakh, but the property’s value has increased to Rs. 55 Lakh. That means the borrower can now get a loan worth Rs. 60 Lakh, but only after settling the outstanding balance of Rs. 20 Lakh. In that situation, when they transfer the due credit to a new financial institution at a revised interest rate, they can get a top-up loan on their current loan.
- Poor Customer Service from the Current Loan Company
Unflattering customer service from the original loan provider is a crucial reason that makes loan refinancing a necessary option. Lack of prompt reaction from the current lenders often leads to poor borrowing decisions and irrelevant interest rates on the Home Loans, leading to the borrower’s loss. Switching to a lender that swiftly adjusts the interest rates as per market fluctuations results in better satisfaction and timely repayments.
- Changed Financial Status of the Borrower
Any change in the borrower’s financial status, income, or credit score warrants a Home Loan refinancing. When the borrower’s income plummets, paying the loan EMIs each month suddenly becomes financial woe. If the credit score improves over time, the borrower would not want to continue paying a high interest rate they got at the loan application. Under such circumstances, switching lenders would be wise to ease the financial burden or get a better interest rate from a new lending institution. Borrowers with better financial footing can bargain a reduced interest rate or revised tenure, ensuring they settle the loan sooner or easier.
Also Read: How Can You Increase Your Home Loan Eligibility?
To conclude, Home Loan refinance is an excellent tool that allows customers to smartly manage their changing circumstances and use them to their advantage. Using this facility on time will reduce the mortgage loan interest and minimise the overall loan cost with easier repayment.