Everything changes with time. Let us assume you applied for a Home Loan 10 years back. You obtained the loan from a particular bank as it made the best offer then. But now, after 10 years, you may have better Home Loan offers at hand. And you may want to explore them.
This is quite possible thanks to refinancing the home loan. It allows you to switch from your existing bank/lender to a new one. This may help you secure better Home Loan interest rates and repayment terms and will ease the loan repayment process. This blog will discuss why and how you can refinance your Home Loan.
Why Should You Consider Home Loan Refinancing?
The following are common reasons for considering Home Loan refinancing:
Better Interest Rate Offer
Better Home Loan interest rates are one of the most common reasons why people opt for refinancing. You could consider it too. Discover the interest rate offers banks are currently making. Consider switching if a bank offers a lower interest rate than the current rate. This will reduce the interest liability. This, in turn, will make your EMI more affordable.
Change the Type of Interest Rate
There are two types of Home Loan interest rates: fixed and floating. The fixed interest rate stays constant throughout the tenure, while the floating interest rate varies during the tenure because it's linked to external benchmark interest rates. If you want to change your interest rate, consider refinancing your home loan.
Favourable Repayment Terms
Repayment terms impact the ease with which your repayment is completed. Every bank has different repayment terms. If a bank provides more favourable repayment terms than yours, consider refinancing. This may make the loan repayment easier for you.
Reduce Tenure
Typically, you obtain a Home Loan for a fixed tenure. You can consider switching to a new lender if you wish to reduce tenure. This may lead to changes in interest liability and EMI.
Borrow Additional Funds
If you’re looking to borrow more funds on top of your existing Home Loan, refinancing can be a viable option. Your new lender will assess your financial eligibility and determine the additional loan amount they can offer. This approach can help you efficiently manage your financial needs while consolidating your obligations under one loan.
Steps to Refinance Your Home Loan
Following the below steps to refinance your Home Loan:
1: Assess Your Financial Situation
Firstly, gauge whether you can afford a loan refinancing. Consider your income level and stability, debt-to-income ratio, credit score, and other factors. If all factors are up to par, apply for a Home Loan refinancing. If you are struggling financially, opting for loan refinancing may not be a good idea.
2: Clear Your Track Record
Having a clear track record with your existing lender is essential. With an unclear track record, existing and new lenders will not allow refinancing. Hence, it is important to clear your track record before applying for refinancing. You can do this by making timely repayments and settling all dues.
3: Research for New Lenders
Almost every bank and housing finance institute offers Home Loans. Research about them. Summarise the interest rate and repayment terms each bank offers. This will help you choose the most suitable bank for your application. A Home Loan Calculator helps you effectively compare various interest rate offers.
4: Apply for Refinancing
Home Loan refinancing is much like a fresh loan application. Therefore, you need to fill out the Home Loan refinance form. Take care while filling out the form, as the bank considers it for verification. They also enter them in their official records.
You must also submit documents to apply for a Home Loan Refinance. A document list is available on the bank's website or mobile app. Gather these documents in advance to avoid last-minute hassles.
Check the document's validity and clarity before uploading it to the website or app. The bank may request additional details and documents on a case-by-case basis. Prioritise fulfilling their requests.
Wait for Approval
Once you submit your application, the bank will take some time to verify your details and complete the necessary formalities. Upon approval, they will present you with an offer that includes the applicable Home Loan interest rates and repayment terms based on your eligibility. If you accept the offer, you will need to close your existing loan with the current lender. After this process, your loan repayment will continue with the new lender under the agreed terms.
Summing It Up
Home Loan refinancing lets you transfer your ongoing loan from the existing bank/lender to a new one. You can benefit from a better interest rate and favourable repayment terms. You can also reduce your tenure or borrow additional funds. While refinancing is viable, weigh all the pros and cons before opting for it.
