Home loans helped fulfill the dream of numerous people of owning a house. However, home loans sometimes can prove costly. Whether it’s about higher interest rates, lack of good services by the lender, hefty charges, or any other case, if you are dealing with any of the above issues with your home loans, don’t worry. You can go for home loan refinancing. What is it? Let’s find out!
What is Home Loan Refinancing?
Home loan refinancing simply means taking a new loan to repay the earlier one. Millennials also call it the Balance Transfer facility. However, several myths revolve around refinancing your existing home loans. Here, we have busted all those myths to bring out the reality of home loan refinancing.
Myth-1 – Refinancing is a costly alternative: Many borrowers believe that refinancing is expensive and it’s not worth going for. However, to bring out a clearer picture, here are the costs associated with refinancing. Your existing banker can charge up to 2%-5% of the principal outstanding as prepayment or foreclosure charges. Please inquire with your current lender about the costs they levy. While making the application for refinancing, you will be charged with the login fees, which is a nominal amount between Rs. 2000 and Rs. 5000 processing fees, about 0.5%-2% of the loan amount and certain administrative charges.
That’s it! The expenses associated with refinancing are far less than the savings.
Myth-2 – Changing from floating interest rate to fixed rate is not allowed: If your current home loan has a fixed interest rate, you will still end up paying higher interest in case of a decline in interest rates. However, refinancing allows you to shift from a fixed interest rate to a floating interest rate, thus allowing you the benefit of declining home loan interest rates.
Myth-3 – You can’t change the Lender: Thanks to refinancing, changing a lender is always an option with the borrower. If you feel the interest rate is too high, your existing lender declines your request to shift to a floating interest rate, or the services are inefficient. You can go for a different lender to refinance your current home loan.
Myth-4 – Refinancing won’t lead to a lot of savings: Refinancing can save you a ton of interest, especially if the option is exercised in the early stage, where most of your EMI amounts go towards interest payment.
Suppose you have availed of a home loan of Rs. Fifty lakhs for 20 years. Currently, you are paying 9% interest on your home loan. Thus, your total interest paid over 20 years will be Rs. 58 lakhs. While for the same loan at a 7% interest rate, you will pay Rs. 43 lakhs, thus, saving you Rs. 15 lakhs. Against this, the total cost of refinancing is negligible.
Myth-5 – Top-up is not available in case of refinancing: If you want to avail of a top-up on your existing loan, but your current lender is declining your request, then going for refinancing will serve the purpose. The new lender may provide you with the required top-up amount as per their policies while transferring your existing loan. Also, you can avail of the latest home loan interest rate for both the current and the top-up loan amount.
In A Nutshell
The borrowers usually exercise refinancing if they are paying a high-interest rate or are facing issues with the services provided by their existing lender.
To calculate the benefit of refinancing, you can use a home loan EMI calculator. By entering the loan amount, tenure, and home loan interest rate, you can calculate the total interest you are paying for your existing loan and the refinanced loan. Therefore, avail of the maximum benefits of refinancing with the best lender that suits your needs.
