HOME LOAN REFINANCE

 Four reasons to opt for loan transfer

Refinancing early in your loan tenure ensures maximum benefit

HOME LOAN REFINANCING is the process of transferring your existing home loan to take advantage of better terms or rates. Refinancing your home loan can be a good option if you are looking to lower your monthly payments, reduce your interest rate or change the terms of your loan.

When you refinance your home loan, your new lender will pay off your existing home loan, and you will then make payments on the new loan. Refinancing can also help you switch variable-rate loan to a fixed-rate loan or vice versa. Refinancing can be done either by your current lender or a new one.

“A loan of Rs 50 lakh at 8% for 20 years attracts interest of Rs 50.37 lakh. If this loan is refinanced at 7% the interest falls to Rs 43.03 lakh. This provides savings of over Rs 7 lakh , which can be used for investments and for achieving various aspirations. There are situations when refinancing helps. There are situations when it does not.” Here are four scenarios for choosing home loan balance transfer.

High interest rate

If you have taken a home loan at a high interest rate, you may consider transferring your balance to another lender who is offering a lower interest rate. This could help you save a significant at of money in interest payments over the life of the loan.

“Refinancing early in your loan tenure- typically in the first half-makes the maximum sense. Similarly, when more than half your loan balance is left, it makes more sense. During such periods, your EMIs focus mostly on interest payments. Therefore, a refinanced loan at a lower interest rate when most of your loan is still left will lead to heavy savings. Refinancing late makes little difference, since most of your interest is already paid off.”

Better loan terms

If you are not satisfied with the terms and conditions of your existing home loan, such as prepayments charges, processing fees, or foreclosure charges, then a home loan balance transfer can help you get better loan terms that suit your needs.

Unhappy with services

If you are unhappy with the services provided by your current blank, such as late response to queries, poor customer service or delay in loan disbursement, then a home loan balance transfer can help you switch to a bank that provides better services.

Need to consolidate debt

If you have multiple loans, such as personal loans, credit card debt, or car loans with high interest rates, then a home loan balance transfer can help consolidate all your debt into one loan with a lower interest rate. This can help you save money on interest and simplify your debt payments.

Besides these, some people can choose refinancing when their older loans are linked to previous bench maker. Bank loans after April 1, 2016 are linked to the marginal costs of fund-based lending rate (MCLR). Loans before that date are benchmarked to the base rate. Bank loans issued after October 2019 are linked to the repo rate. Repo rate-linked loans are now the cheapest. So if you still on old bench markers, it is me to shift to the new one.

It is advisable to go through the loan agreement carefully and get clarity in case of confusion about the terms and conditions of the loan. You must do the calculation to ensure it is saving you money, otherwise the entire effort can go in vain.

SMALLER DEBT

One of the best ways to reduce your interest burden is by refinancing.

When you refinance your home loan, your new lender will pay off your existing home loan, and you will then pay EMIs on the new loan.

You can switch from a variable –rate loan to a fixed-rate loan when you go for a loan transfer.

For More Details: Pooja Manoj Gupta, visit www.giia26.com
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