Home Loan Refinancing: How And When To Refinance Your Mortgage

By refinancing to a program for which they are eligible, homeowners could get lower interest rates, smaller monthly payments, and shorter loan terms. This would help them get out of debt faster. Leading lenders now make it easy for new borrowers to get loans at low rates.

But in some cases, people who took out home loans before October 2019 may have to pay more. This raises their overall cost of borrowing, so they need to think about whether or not they should refinance their home loan. By refinancing, people could save lakhs of rupees. This is how:

What Is Home Loan Refinancing?

You pay off your old loan when you refinance your house and get a new one with better terms, like a lower interest rate. You can get a new loan from the same lender or a different one. The old loan is no longer available. The person who got the loan can start making payments on it. A loan with easier payment terms will save the borrower more money over time when it comes to interest.

For instance, a loan of Rs 50 lakh at 8% for 20 years will cost Rs 50.37 lakh in interest. If this loan is refinanced at 7.00 percent, the interest drops to Rs 43.03 lakh. This saves nearly Rs 7 lakh, which can be used for savings, investments, and other goals like travel, upgrading a vehicle, or going to college.

When to refinance your loan

When you refinance makes a big difference in how much you pay each month. Here are the times when it makes sense to get a new loan.

When You Still Have Time On Your Loan:

It makes more sense to refinance early in the life of your loan, usually in the first half. During this time, most of your EMIs will go toward paying interest. So, getting a new loan with a lower interest rate will save you money.

When Your Interest Rates Go Down:

The interest on a home loan is often the most expensive part of owning a home. Fifty basis points or cheaper loans could lead to a shorter loan term, lower EMIs, lower interest payments, and big savings in the long run.

When Both Your Credit Score And Your Income Go Up:

If your credit score goes up to 750 or higher and your income stays stable, you’ll be able to get the best loan deals.

When Refinancing Is Worth The Costs:

Getting a new loan costs money. You should think about doing it when you can save more money by refinancing than it costs.

When You’re Getting Better Service:

Digitized account management, customer service at the touch of a button, closeness to a branch, and lower costs for account management, along with the above reasons, make refinancing a very good idea.

Who Should Refinance?

There are various causes to refinance a home loan. Here are some of them.

Borrowers Qualified For Lower Rates: Your loan rate may be much higher than offered now.

Borrowers With Strong Credit Scores: If your credit score has gone up and is now over 750, you may be able to get better loan offers.

Borrowers Looking For Improve Benchmark: Repo-linked bank loans are now the most popular choice for people with good credit and income. Prices for repo-linked loans are clearer, which helps borrowers figure out when and how much their variable rates will go up or down.

Borrowers Looking For Tiny Emis Or Longer Tenure: A refinanced loan could help you pay a lower EMI due to the lower rate. It could also make your loan last longer, which would make it easier for you to pay it back.

Borrowers Who Want Easier Payment Terms: Terms and conditions can make it more expensive to borrow money. For example, prepaying a minimum of 2X your EMI instead of 1X your EMI makes interest go up.

Borrowers Requiring Better Customer Service: Digitized services, on-tap account management, a responsive relationship manager, and being close to the branch make things easier for the borrower, especially during a pandemic.

Landlords Looking For Greater Rental Yields: Your property’s rental income could go up if you got a loan that costs less.

How To Refinance

• Step 1: Make sure your loan is priced fairly and gives you the kind of service you need. If so, you don’t need to get a new loan. Let’s call the interest you have to pay on this “A.”
• Step 2: If your current rate is higher than what your lender is offering, talk to your lender and ask question to be stirred to the lower rate.
• Step 3: Figure out how much money you saved in Step 2. This would be the interest saved minus the costs of refinancing. We will call this “B.”
• Step 4: If the lender doesn’t give you a competitive rate, use your credit score and income to find another lender. Ask for the lowest interest rate you can get and how much it will cost to refinance.
• Step 5: Figure out how much you saved in Step 4. We’ll call it “C.”
• Step 6: Look at “A,” “B,” and “C.” The best option is the one that provides you with the lowest interest rate and other good things.