The concept of Refinancing a home loan is transferring your outstanding home loan to a new lender. The new loan should be available at better terms than the previous loan. The easiest way of refinancing is to get your new lender to pay off the dues with your current lender and undertake the outstanding loan amount. You would repay the loan by paying EMIs to the new lender. After finalizing the lender who provides the loan at better terms and conditions, you may submit the documentation and complete other formalities upon which they would settle the loan to the old lender and undertake the outstanding loan amount. Read ahead to know the reasons why a person can opt for refinancing for a home loan.
Below are 6 scenarios when a home loan refinancing is the best option:
- Loan with high-interest rates
If your existing lender charges a high-interest rate, then you can transfer your existing loan to a new lender who is offering loans with a low-interest rate.
- When you want to swap from a fixed rate to a floating or adjustable interest rate
If you go for a fixed-rate loan, sometimes the interest rates may start to decline. In that case, you may decide to swap from a fixed rate to a floating-rate loan to save your money spent on interest. If the current lender does not permit you to get the floating rate option you can opt for the refinancing option to switch the interest rate from the old lender to the new lender.
- Want a short home loan tenure
Initially, you may take a home loan with long tenure; however, if you are financially stable you can reduce the home loan tenure. In case your lender does not permit you to reduce the tenure of the loan then you can go for the refinancing option.
- Reduction of EMI amount
In case of any financial constraints, you may want to lower the monthly EMI paid on the home loan to the lender.
- Looking to avail of a home loan at favorable terms or better service from the lender
After the loan disbursement, if you feel that the lender’s service is below par, or you did not get the best value. In such cases, you can think about switching over to another lender.
- A credit score or Income improves
If you face an improvement if your credit score or already have a good credit score of more than 750 or income stability, will enable you to get the best loan offers.
- Need to borrow more money
After availing of a loan, your budget may exceed due to changes in the design or specifications of the house. In this situation, refinance of a home loan could enable you to avail of a bigger loan amount.