Why Is Everyone Talking About Refinancing the Home Loan?

28 Jan

Why Is Everyone Talking About Refinancing the Home Loan?

Refinance your Home Loan

It is the time in markets where there is hope of good and cheering is reigning supreme. It is also the time when many look ahead for interest rates to come down. In such circumstances, refinancing your existing mortgage, also known as balance transfer of home loan, can be the alternative that would figure top in your priority list. And before you speculate on what should be your first move, here are certain reasons why you should go for it:

Saving of time and money is good sufficient reason to go for refinancing the home loan. Let us understand this with an example. Let’s say your home loan outstanding as of today is Rs. 50 lakh and the current interest rate is 11.5%. Then in that case you are paying an equated monthly installment of Rs. 53,322 and you are still 20 years away from the debt free status. But if you refinance the home loan at 8.65%, you will be paying an EMI of Rs. 44,307 – saving of Rs. 9015 per month. On the other hand, you can also keep your EMI constant. If you choose to pay an EMI of Rs. 53862, you will be debt free in just 16 years, a saving of four years. Put simply, you benefit in the process.

This saving is fairly significant as saving some money now amounts to creating wealth in the long-term. If you have five years to become a loan-free, you should believe of opting for refinancing. After all, it is your hard earned money and longer the time you pay back your home loan more money in interest payments. Second and the most significant rule is the current rate of interest on your home loan. If the current rate of interest payable on your home loan is 100 basis points more than the interest rate on offer in the market, you should think refinancing the home loan. If you have a home loan outstanding in your name, and any of these two conditions is met, it is the time to act.

So, what is stopping you from doing this? Is it ignorance or misplaced fear? Many a time borrowers are not conscious that the banking regulator RBI takes a decision that serves them best. Take for example, the abolishment of prepayment penalty on the floating rate home loan. This means that you are free to move to any other bank or home loan lender. However, your new bank may charge you some processing fee to cover the cost of due carefulness, it does while giving you the home loan. To that extent you have incurred one- time cost, which is typically in the range of 0.5% of the loan outstanding. Many banks put a cap on such charges say Rs. 25000. Some banks to waive it to lure good customers particularly if the customer has a credit score or CIBIL score of more than 750. If you have a very good CIBIL score, anywhere between 750 and 900, you stand to save on these costs.

If you do some homework about the prevailing interest rates offered by banks, you will certainly find some good deals. As interest rates are on the way down, you stand to advantage. If you refinance your home loan now, you are extremely likely to save more. So, focus your energies on these to make the most of the present situation.

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Finheal

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