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  • Things You Should Know before Transferring Your Home Loan

    Also known as Home loan balance transfer, home loan refinancing is a process where your existing loan amount is paid off by taking a new loan. Many home loan borrowers opt for home loan refinancing to save on interest costs or increase the loan tenure. If you plan properly, home loan refinancing can offer you a host of benefits. However, there are certain things you must consider before opting for a home loan balance transfer. Before we explore the factors that you must consider before transferring your home loan, let us understand the benefits of home loan refinancing.

    Benefits of Home Loan Transfer

     

    As mentioned earlier, there are many reasons why one would choose to refinance their mortgage. However, the most important benefits are:

    • To save on interest: One of the main benefits home loan balance transfer offers is saving on interest cost. After you have availed a home loan, if the lending rates in the economy fall and your existing lender is still charging you a high interest rate, you can opt to refinance your loan and choose a lender who offers a low interest rate. This will help you save on interest costs in the longer run.

      Many home loan borrowers have explained their struggle of paying a high interest rate. Paying a high interest rate home loan will increase your burden of paying EMIs. Therefore, if you are paying a high interest rate on your mortgage, you must consider refinancing your loan.

    • Switch from fixed interest rate to floating interest rate: If you availed a fixed interest rate home loan and realised that a floating interest rate mortgage would have been better, you can change the type of interest charged on your loan by refinancing it.
    • Reduce or increase the tenure of your home loan: Once you have accepted your home loan agreement, you cannot change the tenure of the loan. The tenure of the loan can be changed when you refinance your mortgage. When refinancing your loan, you can choose to increase or decrease your home loan tenure. If your financial position has changed for the better, you can choose to reduce the tenure. If you are unable to pay your home loan EMIs, you can choose to increase the tenure of your loan and decrease the EMI amount.
    • Avail better home loan deals and customer service: Apart from the interest rate, there are many other features that must be considered when you avail a home loan. Most people refinance their home loan to get better features such as nil foreclosure fee, lower penalties, or better customer service. If you have an existing home loan and feel your lender’s service standards are below par, you could switch to a lender who offers favorable terms and conditions.
    • Get additional funds: If after availing a home loan, your funding needs may have increased. You might need additional funds for home renovations or extensions. In this case, home loan refinancing might help you get additional funds.
    • Reduce the home loan EMI amount: If there any changes in your financial position and you are unable to afford your home loan EMIs, refinancing is a good option. By refinancing your home loan, you can choose to lower your EMI. You can lower your EMI by choosing a lower interest rate home loan or by increasing the tenure of your loan.

    Things You Must Consider Before Transferring Your Home Loan

    Though home loan refinancing is often beneficial, and the process is effortless, there are a few factors that you must consider before you opt to transfer your mortgage. Some of the factors you must consider are:

    • The new lender’s credibility: It is easy to get carried away when a new home loan provider offers a lower interest rate. However, before you initiate a home loan transfer, make sure the new company is a credible one. It is very important to do a background check of the company before you choose to transfer your loan.
    • The remaining tenure on your existing loan: Opting for home loan balance transfer in the second half of your tenure is not worth it. If you have only a few more years to pay off your existing home loan, you must have cleared the interest payable on the loan during the initial years of the loan. In this case, refinancing your loan might not be a great idea. If you get a new loan to pay off your existing loan during the last few years of the tenure, you will end up increasing the interest costs on your new loan. Always make sure you opt for refinancing in the earlier half of the tenure.
    • Cost of refinancing your loan: Refinancing your home loan will attract certain fees and charges. Before you opt for a home loan balance transfer, make sure you compare all the hidden fees and charges, and choose to refinance only if it is financially beneficial for you. If the costs of refinancing your loan such as stamp paper fees, documentation charges, processing fee, etc., outweigh the savings you receive, it becomes illogical to refinance your loan.
    • Terms and conditions of the new loan: It is crucial to be aware of the terms and conditions of the new home loan. Read the fine print carefully. While a low interest rate home loan may seem eye-catching, it is very important to fully understand the terms and conditions that your new lender is offering. Choose to refinance your home loan if the terms and conditions are beneficial.

    It is very important to take time and decide if you really need to refinance your home loan. Always consider both the advantages and disadvantages of going through the home loan refinancing process. It is not advisable to opt for home loan balance transfer if it is not beneficial for you unless it brings you long-term benefits.

      

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