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Things to Consider Before you Refinance your Home Loan

A Home Loan offers you the convenient option of owning your dream home without breaking the bank. There is no dearth of financial institutions ready to offer you Home Loans. Infact, you can apply for a online Home Loan without having to move an inch from wherever you are. When you apply for an online Home Loan, you can calculate the EMI and alter the loan tenure to ensure that you can make your EMI payments on time without straining your finances.

Home Loan interest rates are varied and you need to take an informed decision on the choice of the lender based on interest rate, processing charges, turnaround time and prepayment charges.

The increased demand for housing has led to a spurt in demand for Home Loans – financial institutions are attracting home buyers with low interest rates. Under the Home Loan transfer procedure, your outstanding loan balance is transferred from the original bank to the new lender and you enter into a fresh Home Loan agreement with the them.

Before you decide on refinancing your Home Loan, it is beneficial to consider the following aspects

Savings in Cost

The primary reason to opt for a refinance is to achieve savings. When the change is made to a loan at low interest rates, check whether you stand to save enough to offset charges like prepayment penalties, processing charges, and other charges of the new loan. It makes sense to refinance the Home Loan only if you are going to save substantially over the tenure of your new loan.

Future Earnings

Refinancing can alter the quantum of the loan; it is similar to debt restructuring. While the debt remains the same, what changes is your possible savings. If you’re expecting an increased income flow, a refinanced Home Loan at a lower interest can help to reduce the loan tenure, thus relieving you from a long term liability.

Monthly Cash Flows

A refinance must improve your liquidity. If you are able to refinance your Home Loan at a lower interest rate, there is also a reduction in EMI. A reduced EMI will have a positive impact on your monthly budget- you will have more funds at your disposal, which can be invested in other instruments offering good returns.

Once you’ve given due consideration to the above factors, you can decide whether or not to refinance your Home Loan. You need to do a good amount of research and conduct a cost-benefit analysis that will help you decide whether refinancing your Home Loan is a wise decision.