Refinancing Home Loan in India

Refinance has become a common way of repaying existing debts and creating new ones. Refinancing in simple terms means replacing your existing loan, with a new one, under fresh terms and conditions. The new loan or refinance taken for the payment of earlier loan is always at lower interest rates so that the person can save some money towards the payment of the interest every month. Home loan refinancing has various aspects that are required to be understood so that a person really gains from it.

When to Refinance a loan

A person must be a good calculator about saving the amount by means of refinance. Refinancing is one of the wise decisions to be made by a sensible borrower to get the refinance loan and save some money towards the payment of the interest every month. Some borrowers choose refinancing home loan due to the following reasons:

• Interest rates in the economy have fallen and it makes sense to retire the old high cost fixed rate loan with a new fixed rate loan at the lower rate.

• If borrower plan to sell the home during the tenure of the original loan he need to terminate the loan borrowing remaining principal amount against the home equity or from the potential buyer.

• Refinancing a home loan is better option when borrowers want to switch from a Fixed Rate loan to a more flexible Floating Rate. The right time to consider this option would be when loan interest rates are low.

• You can lower your monthly installment payments by extending the tenure of the new loan. You can prepay an existing loan with 5 years to go by taking a new 15 year loan for the remaining principal amount.

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Precautions for Refinance of home loan

A home refinance option could prove to be beneficial for many borrowers. Before going in for a refinance option, it is important to analyze your existing home loan, the current interest rate scenario and the charges quoted by your refinance lender. This will give you an idea whether it is actually worthwhile and profitable for you to transfer your loan to a new lender.

For seeking the advantages from the refinance loan, the borrower has to be sensible enough to calculate the amount he would save by refinancing the home loan. For this he will have to consider disparity in the interest rates and accordingly calculate the loan installments with previous or current lender. Make sure that you do not end up paying heavy fees especially if there is a nominal difference between the interest charges of previous and present loan.

The most important aspect to be taken into consideration before refinancing is choosing the right home loan refinance lender. When choosing your lender take into account the interest rate of your new loan, charges for prepayment quoted by your previous lender and the processing and administration cost charged by the refinance lender. Hence, it is important to remember that when the person obtains his refinance for home loan, he is actually reimbursing the home loan prior to its tenure and is thus accountable to forfeit the prepayment fine. This kind of penalty can be substantial and can flush out all the benefits of refinance.

A person can contact different lenders in the area for getting the loan at low interest rates. In fact, in order to acquire more customers at times when the interest rates fall, most of lending institutions come up with advertisements regarding refinance loans. If a person is not having perfect credit history, he can repay the home loan by means of refinancing loan and this would definitely prove useful for him in improving his credit history. It is important to note here that when a person gets the refinance for home loan, he is actually paying home loan earlier than its term and thus, is liable to pay the prepayment penalty.