5 Reasons Why You Should Refinance Your Home Loan

Written by Posted On Monday, 08 May 2017 23:01

Home Loan refinancing refers to getting a new loan from another lender to essentially replace the existing one either because you are being offered lower rates elsewhere, or because the new lender is allowing you to borrow a greater amount. While these are the leading reasons that cause people to switch lenders, there may be other contributing factors such as service or reduced fees and charges on prepayment and foreclosure, which can lead to you to opt for refinancing your Home Loan.

Home Loan Balance Transfer

Listed below are the most prominent reasons to refinance your Home Loan with a different lender and how it can be financially beneficial to you:

1) Interest Rate Savings

The most common reason to opt for Home Loan refinancing is interest rate savings. Getting a lower interest rate can save you a lot of money and you will often find more attractive rates when you switch your Home Loan to a new lender. However, it isn’t always that simple. There are a number of aspects to consider before leaping at an attractive rate seen elsewhere.

  • Firstly, you should examine the remaining tenure of your current loan. If you only have a few years left to pay off your Home Loan, then it may not make financial sense to switch. Interest payment savings are only really sizeable for those who have a long tenure left on their Home Loans.
  • Secondly, be sure to look at the various fees and other charges that may be levied on you from either lender when you switch your Home Loan. These can collectively often amount to more than what you stand to save in the long run.
  • Third, be sure that you aren’t hit with any hidden charges when you move to a new lender. Pick a lender who is transparent with its fees and processes.

2) Moving from Floating to Fixed Interest Rates or Vice Versa

Market conditions play a big part in your Home Loan refinance decision. For example, say you have a floating rate Home Loan – a rate that fluctuates in line with market conditions. When Home Loan interest rates are high, you may be tempted to switch over to a fixed rate loan – a rate that doesn’t change – which is at a lower rate. Conversely, if your fixed rate loan is charged above the market rate, which has fallen, then it may well be in your interest to switch over to a floating rate Home Loan. There is always the risk in either option that the market could fluctuate further and it is therefore important to assess overall market conditions before taking a decision.

3) Top Up Opportunities

A further incentive to refinancing you Home Loan is if other lenders offer to lend you a larger amount at the same rate of interest. This could ease the financial burden on you in the long term, particularly if your Home Loan didn’t cover the entire cost of your purchased property, in which case a top-up loan might be exactly what you need. Alternatively, this may open up as an option to you if the value of your property has appreciated since you took the loan, in which case you’re entitled to borrow more should you need to. Thirdly, top-up loans are often used by homeowners to furnish their new home and avoid spending out-of-pocket.

4) Poor Service Levels at Your Existing Lender

Dealing with certain banks and financial institutions can be a real nightmare as a result of complex processes, which makes it difficult to maintain an effective relationship without getting transferred to different agents all the time. You also also experience costly delays such as your old lender not providing you with proper documentation on time, providing poor customer care or slow reaction times to changes in Housing Loan Interest. These are all issues that can push you over the edge and make you look elsewhere for cheaper rates and better service.

5) Change in Financial Circumstances

If your income or general financial circumstances change, it is likely to affect your ability to afford EMI payments. If your income has reduced due to loss of job or another unforeseen reason, then refinancing to a lender offering lower rates and a longer tenure will reduce the burden of your monthly payments. Similarly, if you have more disposable income then you could do the same to reduce the tenure of your loan and pay it off sooner.

Refinancing can be a very useful and beneficial option for those looking to save money on their current Home Loan by lowering your monthly instalments or those looking to borrow more. If you too are looking to make the most of low interest rates, fill in a simply Home Loan transfer form at Bajaj Finserv and reap the rewards. 

A Home Loan with Bajaj Finserv not only gives you a low rate, but also flexible repayment options, a 3 EMI holiday to help you plan your finances better and no hidden charges. Check Bajaj Finserv’s free Home Loan EMI calculator and see what you can stand to save.

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Arwind Sharma

Arwind Sharma is a financial advisor with an experience of more than 15 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog on photography.

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