A home loan is a substantial commitment, and with time, you may be searching for options to simplify it. Whether it’s because your financial situation has changed, interest rates have dropped, or you’ve come across a better loan offer, refinancing your home loan could be a smart move.
What is Refinancing Home Loan?
Home loan refinancing refers to replacing your existing mortgage with a new one especially to gain improved terms. Homeowners often do this to reduce their interest rates, change the loan period, or convert from fixed to floating rates. Refinancing lowers monthly payments, saves on interest or even gets you additional funds.
When Should You Consider Refinancing?
It is prudent to refinance your home loan if interest rates have fallen, as this will reduce your monthly EMIs as well as the total interest you pay. If your income or credit score has improved, you also get better terms on your loan, which makes it less costly in the long term. It is particularly useful in the initial years of your loan when payments are primarily being used to pay interest since refinancing at this point can result in substantial savings.
Apart from the financial benefits, refinancing can be considered if you're not happy with the service offered by your current lender. The lending experience in general can be improved by moving to a lender that has improved customer service, lower costs or improved terms. Also, refinancing gives you the flexibility to rearrange your loan as you see fit by allowing you to add or remove a co-applicant.
Things to Keep in Mind
1. Check the Fees: Before refinancing, check if the fees, including processing fees or prepayment fees, are worth the savings you will have from the new loan.
2. Contrast Loan Terms: Make sure that the new loan comes with improved conditions, like a reduced interest rate, shorter period of repayment, or flexible payment terms more responsive to your financing needs.
3. Monitor Your Credit Score: If your credit score is better you may be able to get preferential interest rates. But if it's dropped your prospects of refinancing are reduced.
4. Loan Tenure: Be cautious while determining the loan term. Increasing the term will lower your EMI but can also raise the total interest payable.
5. Affordability: Be sure that refinancing won't put a strain on your finances. Check to see if the new loan installment is still within your means.
