Are you facing difficulty in repaying the monthly EMIs on your home loan? Consider refinancing it!
When you refinance a loan (also called a loan balance transfer), you’re basically paying off your existing loan amount by taking a new loan from a different lender, however, at a lower interest rate. As a result, after refinancing the loan, you can enjoy better repayment terms, including a reduced EMI amount.
Here are the steps you can use to refinance your house loan.
Steps to refinance an existing house loan
Here’s how you can refinance your house loan:
- Check your eligibility
First and foremost, you must check the home loan eligibility criteria set by your chosen lender. If you meet the conditions, you can apply for a loan balance transfer.
- Approach your current lender
You must approach your current lender and submit the following documents:
- Your loan repayment history
- A no objection letter along with a foreclosure letter
- A list of all your official loan-related documents with the lender
- Choose a new lender
This is the most critical step, as you will only benefit from the refinancing process if you choose the right lender for the second loan. Thus, it is best to compare multiple financial institutions and their home loan interest rates before settling for one.
- Apply for the new loan
After choosing a lender who offers competitive interest rates and loan terms, you can apply for a new loan. You can also use the home loan EMI calculator to estimate your new monthly instalments and create a reasonable budget to match it.
When should you refinance a house loan?
- Change in income: If you have lost your job recently or are facing any financial distress, refinancing can come to your rescue. You can pay off the current loan with another that offers more affordable terms and conditions.
- Lower interest rates: The most common reason for refinancing is to get lower rates of interest. After all, even a single percentage difference in the interest rate can affect your EMI amount significantly. Hence, you can benefit from a lower home loan EMI every month.
- Switch between fixed and floating interest rates: If you pay a high floating interest rate and wish to switch to a fixed rate of interest or vice versa, you can refinance the home loan.
- Poor service by the existing lender: You can also choose to refinance if you are unsatisfied with the services of your current financial institution. For instance, if your lender doesn’t issue loan statements on time and provides poor customer service, it might be time to switch.
Undoubtedly, refinancing is a valuable tool that can be beneficial in multiple scenarios. However, you must evaluate your situation before opting for it as there are additional charges involved. Weigh the pros and cons before making your decision and in case of confusion, consult a financial expert!