Refinancing a home loan involves applying for a new home loan from a different bank or NBFC in order to close your existing home loan in full. The most common reason that people choose to refinance their home loan is to take advantage of lower interest rates offered by another lender. By closing an existing home loan at higher interest rates with the help of another home loan which comes at lower interest rates, they will have significant savings of interest over the repayment tenure of the new loan. However, there are other reasons as well to consider refinancing your home loan. Here are five of them:
Reduced Interest Rates
As mentioned above, this is one of the major reasons why people choose to refinance their home loans. Lower interest rates translate to lower Equated Monthly Instalments (EMIs) which means more money in hand at the end of the month which is useful if you want to increase your savings or meet other expenses. With floating interest rates offered by most banks, which are linked to the repo rate set by the Reserve Bank of India, and the home loan market getting increasingly competitive, you can be sure of finding home loans with interest rates lower than what you are paying now from another bank of NBFC.
A balance transfer home loan often comes with a top-up home loan as well at the prevailing interest rates. This top-up loan can come in handy in different scenarios, such as if the property value has exceeded the loan amount that was sanctioned to you. You can also use the top-up loan for carrying out other work in your property, such as a renovation.
Longer repayment tenure at lower EMI
Any change in financial status, which makes it impossible to continue paying the home loan EMI, can result in a lot of mental stress and anguish. In this situation, if there is a lender who offers a longer tenure with a lower EMI, then it would reduce the stress and make it easier to repay the loan.
This can also work the other way around, where you can negotiate for lower interest rates but at a reduced tenure and higher EMI, which will help you pay off your home loan faster than before. This will give you many years without the stress of EMIs much sooner.
Switching from a floating to a fixed interest rate or vice versa
You can refinance your home loan because you want to switch from a floating to a fixed interest rate or vice versa. Although this could also be done with your existing lender, the benefit of switching over to another lender with a different type of interest rate than the one you currently have is that you will be saving more money with the reduced interest rate. It is important to compare the interest rates between a fixed and floating system and then decide which one to choose.
Better customer service
If your existing lender’s customer service leaves much to be desired, such as a delay in addressing your concerns or even neglecting to resolve your problems, then you might consider shifting to another lender with a better customer service track record for your own peace of mind.