Refinancing your home loan: Does it make sense?
A home loan refinance may just be the smartest thing for you to reduce your monthly expenses and improve credit, all at once. In simple terms, Refinancing Home loan means replacing your existing loan with a new one, under fresh terms and conditions. Some borrowers choose to refinance their home loan to terminate the existing loan to sell the property or switching from a fixed rate loan to a flexible floating rate/hybrid product.
When not to refinance
For seeking the advantages from the refinance loan, you should calculate the amount you would be saving by refinancing the home loan. Refinancing home loan may not be the right option for everyone. You should not refinance your home loan in the following cases.
- There is little point in refinancing when you already have a home loan product which suits you best.
- If you have a very new home loan, the exit fees are higher at the beginning of your loan and become lower later in your home loan term.
- If your credit history is worse than the last time when you got a mortgage or home loan.
- Refinancing might not make sense if you’ve already borrowed 90% or more of your home’s value in mortgages and home equity loans.
- The most important aspect to be taken into consideration before refinancing is to choose the right home loan refinance lender. If you fail to find a right lender or can’t find a better deal, you should not refinance.
- When a person gets the refinance for home loan, he is actually paying home loan earlier than its term and thus he is liable to pay the prepayment penalty. This kind of penalty can be substantial and can flush out all the benefits of refinance.
When to Refinance 
Before going for refinance option, it is important to analyze your existing home loan, the current interest rate scenario and the charges quoted by your refinance lender. Refinancing home loan makes sense in following cases.
- Interest rates have fallen.
- If you plan to sell the home during the tenure of the original loan.
- Switch from a fixed rate loan to a flexible floating rate / hybrid product.
- If you are planning to lower your monthly installment payments by extending the tenure of the loan.
- If you have made comparisons and have found a better deal or right lending company.
If you’re not sure that refinancing makes sense for you right now, there are other ways you can make your home loan more manageable. You can find out about discounts and deals from your current loan provider. If your home loan allows you to make additional repayments, then focus your finances on repaying your home loan.
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