Home loan refinancing is the process of transferring the home loans to another lender to pay the existing debt. The home loans can be availed from any of the lenders and also can be transferred to any of the lenders in case of higher interest rates being charged by the existing lender. The home loans are available at an interest rate starting from 6.50% per annum. While as on the higher side the home loans can be charged at a higher interest rate as high as 18% per annum. Thus the lender should be chosen wisely before opting for home loans. Home loan refinancing is also known as home loans balance transfer. The home loans can be refinanced at lower interest rates which can help the borrower reduce the tenure of the loans and also help in saving the interest amount on repayment of loans. The common trend is that the public sector banks charge the lowest interest rates followed by the private banks and then the NBFC’s and co-operative banks. Some NBFC’s charge interest at very competitive rates while the others charge at very higher interest rates.
The banks or the NBFC’s which are very liberal in lending to the borrowers are the ones who charge very high-interest rates, while the ones who are very rigid about the procedures to be followed for the disbursement of loans charge lower interest rates. Before the refinancing of loans, the existing installments must be repaid on time to the lenders. Also, the new lender checks the CIBIL score of an individual before approving the refinancing of loans. Also, the borrowers should take into consideration the actual benefit gained from the refinancing of the loans. As the new lender may charge processing fees on home loans and also the interest rates be revised for the loan. Before the transfer of loans, the borrower needs to take the permission of the existing lender for the balance transfer. Sometimes the existing lenders may create hurdles in the transfer of loans as they do not wish to lose the business of the existing borrowers which gets transferred to the competitors. If a large sum of amount is pending for the repayment of loans only then it is beneficial that the borrower should consider refinancing of loans as only in that case the refinancing can be profitable.
Reasons for refinancing the loans:
- Avail lower interest rates in case of the refinance:
If the existing lender is found to be charging higher interest rates then in that case the refinancing can help the borrower avail loans at lower interest rates through the transfer of loans to another lender. Thus by lowering the interest rates the borrower can save money on interest repayment.
- Reducing the tenure of loans:
The tenure of loans can be reduced or modified while refinancing the home loans. In case of the lower interest rates repayment, the tenure may get reduced. However, the borrower can even modify the tenure of loans by reducing the monthly liabilities and increasing the tenure of loans.
- Additional loans opportunity:
The home loan applicant can avail of an even higher amount of loans for the interior purpose. The top-up loans are thus beneficial to the borrower rather than ending up the savings from the bank account. Thus the approval of higher credits is subject to the approval of the lender for the loans.
- Poor service from an existing lender:
If the service of the lender is not found to be satisfactory then in that case also the home loans transfer can be considered as a better option. As the poor service may include non-functioning of the portal for online payment, non-functioning of customer care support in case of queries or no reminders being sent on email and phone regarding the EMI due date and directly charging penalty to the borrower could be one of the various reasons of the poor service of the lender. In the case of refinancing if the new lender is found to be the one with good ratings then that case it can be a better option for the transfer of loans.
- Moving to float interest rates from fixed rates or vice versa:
The borrower can change the type of interest repayment from fixed to floating interest rates or vice versa during the refinancing of loans. Changing the type of interest repayment can be a better choice according to the need of the borrower.
Conclusion:
Thus there are multiple reasons for the refinancing of the loans. The benefits can be positive while some may be negative which the borrower should take care of. The refinancing of loans can help the borrower to change the type of interest repayment option, help in reducing the interest rates, and also modify the tenure of the loans according to the needs. Thus in case of higher interest rates being charged the borrower should consider refinancing of loans or else even due to poor quality service of the lender.
