Investing in a home is a major investment. Fortunately, the process has been made much simpler with the availability of quick and easy home loans. The problem, however, is that we can never foresee the future and any financial uncertainty could lead to difficulties in repaying your debt. Thankfully, you can choose to refinance the loan via balance transfer facilities.
Refinancing home loan means moving your outstanding loan amount to another lender, to avail lower interest rates, longer repayment tenure and smaller EMIs. You can also check if they allow prepayment of the loan, in case you suddenly have a windfall. A loan with friendlier payment terms might even help you save!
So, how do you know when to consider balance transfer? Here’s a look.
1. When There is Time Left on Your Loan
You should refinance your loan typically in the first half of your repayment tenure, when the EMIs mainly focus on interest payments. A refinanced loan at a lower interest rate will help you create savings to fund for future education, trips, vehicle upgrades and a lot more.
2. When a Large Amount is Left to be Repaid
Mostly, people shift from their existing loans to a new lender when they are offered reduced interest rates. However, it only makes sense when the larger chunk of the loan is still to be repaid. This can help you access higher savings through a lower interest rate. Many home loans are based on floating rates, however, not all lenders reduce the interest rate when the market rates decline. In cases like these, it is recommended to opt for home loan refinancing to reduce overall costs.
3. Unsatisfactory Service
You might want to refinance the loan in case the lender is not able to provide you satisfactory services, such as failing to issue your loan statements on time, inconvenience in paying your EMIs online, slow in reacting to changing interest rates, poor customer service, etc.
4. Debt-to-Income Ratio
In case you are already repaying a loan, it is not always easy to get another loan. Lenders have become stricter when it comes to debt-to-income ratios. Factors like having high income, a steady and long job, substantial savings, etc., might help you qualify for this additional loan. However, when you choose to refinance the loan, you might get a top-up loan facility, where you can get an additional loan quickly and easily.
5. Rates and Terms
While most borrowers focus on the interest rates, it is important for one to establish goals when refinancing. If your goal includes reducing monthly payments, you might choose a loan with low interest rate in the long term. Borrowers who want to pay of their loan as quickly as possible look for loans at lower rates with a short tenure. You can always use a housing loan calculator to help you figure which path is the best for you to choose.
When refinancing, remember to check out all your options. You can also check out various ways in which you can get tax benefits when applying for a home loan.