If you took out a home loan 10 years ago, you likely compared lenders, interest rates, and terms at that time. Over the years, the home loan market has evolved, and your current loan might not be as flexible or offer the best service anymore. Refinancing your mortgage with a new bank or NBFC can help you take advantage of improved loan options, better interest rates, and more flexible terms. This process, known as home refinancing, allows you to update your loan to better meet your current needs.
Let’s discuss top 5 reasons to refinance your home loan
Interest rates greatly affect the total cost of your home loan. A lower interest rate means smaller monthly EMIs and less total interest paid over the life of the loan. If any bank offers you the low interest rate then why shouldn’t you refinance it and take the advantage right? For example: Transferring your home loan to a new lender with a lower interest rate can save you a lot of money. For example, if your current rate is 9% and a new lender offers 7.5%, the lower rate can lead to big savings.
One more example: Let's assume you have a home loan of ₹50 lakhs with a remaining tenure of 15 years at an interest rate of 9%. Your EMI would be approximately ₹50,703. By refinancing to a new lender offering 7.5%, your new EMI would be around ₹46,357. Over the remaining tenure, this switch could save you around ₹7.8 lakhs in interest.
A home loan is a long-term commitment with your lender. Good customer service, clear communication, and quick problem-solving are important for a smooth experience. Some borrowers experience problems like slow responses, unclear information, complicated processes, or unhelpful customer service. These issues can make managing your loan more stressful and inconvenient.
For example: If you frequently face delays or unprofessional behavior from customer service, it can disturb your peace of mind and financial planning. Refinancing your loan with a lender known for better service can make managing your home loan more pleasant and stress-free.
Fixed Interest Rates: Remain constant throughout the loan tenure.
Floating Interest Rates: Vary based on market conditions and the lender's base rate.
Switching to Fixed: If you expect interest rates to rise or want the stability of fixed EMIs, switching from a floating to a fixed interest rate can give you peace of mind.
Switching to Floating: If you think interest rates will drop or don’t mind changing EMIs, switching from a fixed to a floating interest rate can lower your total interest costs.
For example: If you have a floating interest rate of 8.5% and interest rates are expected to rise, switching to a fixed rate of 9% can lock in your EMI and protect you from higher rates. On the other hand, if you have a fixed rate of 9% and rates are expected to drop, switching to a floating rate of 8% can lower your EMIs and total interest.
A top-up loan is an extra loan amount you can borrow on top of your existing home loan. It can be used for things like home renovation, education, medical expenses, or other financial needs. Top-up loans usually have lower interest rates than personal loans or credit cards, making them a good option for extra funding.
For example: If you need ₹10 lakhs for home renovation and your current home loan interest rate is 8.5%, a top-up loan from your existing lender might come at an interest rate of 9%. However, if another lender offers a lower rate for both the remaining loan amount and the top-up, refinancing your home loan to that lender can save you money on both accounts.
Changes in your financial situation, like a higher income, a new job, or a large financial gain, can impact how you manage your home loan.
If your financial situation has improved, refinancing can help you:
Reduce the loan tenure: Pay off your loan faster and save on interest.
Increase EMI payments: Reduce the overall interest burden.
Opt for better terms: Benefit from more favorable loan conditions.
For example: If you get a big salary increase or a large amount of money, you can refinance your home loan to shorten the term from 20 years to 15 years. This will save you a lot of interest, even if your EMIs go up a bit. Alternatively, you can increase your EMIs to pay off the loan faster.
| Reason | Key Points |
|---|---|
| Lower Interest Rate | Refinancing to a lower interest rate can significantly reduce EMIs and total interest payable over the loan tenure. |
| Not Good Service from the Lender | Poor service can add stress and inconvenience; switching to a lender with better service can improve your experience. |
| Switching from Fixed to Floating | Switch to fixed rates for stability if interest rates are expected to rise; switch to floating rates if they are expected to drop. |
| Switching for a Top-Up Loan | Top-up loans provide additional funds at lower interest rates compared to personal loans or credit cards. |
| Change in Your Financial Status | Improved financial status allows you to reduce loan tenure or increase EMIs, saving on interest and paying off faster. |
Refinancing or transferring your home loan can be a good choice for reasons like getting a lower interest rate, better service, or improved loan terms. Knowing your options and the benefits helps you make smart decisions that match your financial goals.
How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
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The best time to refinance is when you find a significantly lower interest rate, need better service, or want to switch your loan terms to better suit your financial situation.
You can calculate the savings by comparing the total interest payable on your current loan with the total interest payable on the refinanced loan, including any refinancing costs.
While it’s challenging, some lenders might still consider your application. Improving your CIBIL score before applying can increase your chances of approval.
Yes, refinancing typically involves processing fees, legal fees, and sometimes prepayment penalties from your existing lender. Ensure the savings from the lower interest rate outweigh these costs.
Commonly required documents include identity proof, address proof, income proof, property documents, and a no-objection certificate (NOC) from your current lender.
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