Refinancing the house loan is basically making the existing plan better by changing it with another plan with the coverages of your wish. People usually do it to decrease the interest rate to get a more budget-friendly situation for their daily lives. Many also try to refinance to convert the home loan capital into cash or switch to a fixed-rate loan. If you are getting an offer from a different lender for a lower interest rate than your current one, you can consider refinancing. It depends on your occupation, state of employment, yearly income and the number of dependents as well. If you are eligible, then it is better to opt for a long-term plan.
REFINANCING THE HOUSE LOAN – ANALYSIS
Refinancing the home loan covers a lot of sides of our daily lives budget. It would help if you considered comparing your current housing loan interest rate with the offer you are getting and some other crucial facts so that you do not get cheated later on. There are some benefits as well as some risks to refinance your current home loan. The borrower should analyze the benefits and the drawbacks before taking any final decision on refinancing their home loans. Some of the benefits and risk factors are discussed below.
Benefits of refinancing house loan when the interest rate is falling
There are so many benefits to refinancing your old home loan plan with a new lender. An elaboration can help to understand them more.
A lower amount of interest
It is the most general reason for people to opt for refinancing their current home loan with a new lender. When the interest rate is falling and your current lender is delaying on reducing their loan interest rate, you should opt for a new lender with a lower interest rate to switch.
Switching from fixed-rate to floating-rate and vice-versa
People with the fixed-rate home loan often decides to go for the floating-rate home loan, especially when there is a downfall in the interest rate. Again, people with the floating-rate home loan opt for the fixed-rate one to get a constant amount of Home Loan EMI, irrespective of the interest fluctuations.
Changes in the tenure or EMI
Home loans are usually long-term plans. The borrower may not be in the same financial situation over time. If there is a monetary problem, the borrower may want to extend the tenure. Again in case of a better income, if the borrower can pay more EMI, then they can choose to reduce the period.
To get better customer service
If the borrower is not happy with the current lender’s behavior, then they can choose to refinance and go for a new lender to get better customer service.
Risk factors related to refinancing house loan when the interest rate is falling
When you are refinancing your home loan, there are a little too many risk factors you should keep an eye on.
Profitable when refinanced at an early tenure
It is better to refinance the home loan in an early stage of the tenure. If the borrower refinances the loan after five or six years, then it is their loss. The reason is that they have already paid most of the premium.
Refinancing of the existing loan is the same as the procedure of taking a new loan. It may be time-consuming since you need to do all the paperwork again. These include the legal verification of the estate and other procedures.
Chances of getting the application canceled
Your repayment track should be sound. Otherwise, the refinancing application may get canceled. It is necessary to pay the processing fee, valuation fee and the other charges, which makes your existing home loan plan consistent. Sometimes, the current lender levies the prepayment fees.
Home Loan interest rate is an underlying reason for the refinance home loans nowadays. People choose to refinance their home loans mostly to avoid the high repayment caused by the downfall of the interest rate. There are some factors you should keep in mind while choosing to refinance. Loan amount, interest rates, hidden costs, and concessions are some of them. Refinancing your home loan benefits you in overall. But, you have to be very alert while choosing the financing house. It is better to analyze the cost-benefits before choosing. Blindly opting for a loan refinance based on the low interest may not be a wise step.