Everything You Need To Know About Home Loan Refinances

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Carrying that house loan for up to 30 years through all of life’s financial seasons is difficult, especially when your finances are tight. One may lose a job, accumulate medical bills, and children may need funds to attend college. That is when a mortgage might feel like a huge financial burden. As a result, refinancing your mortgage at the right time, based on your financial situation and market trends, can benefit you in the future when money is tight. Here’s all you need to know about refinancing your home loan.

Key Things to Know About Mortgage Refinance or Home Loan Transfer 

Choosing the best time to transfer a home loan

When you transfer your house loan, you must pay processing and other fees. Furthermore, if the repayment period is extended, you are more likely to receive lower interest rates. Also, remember that most of your payments during the first few years are for interest. As a result, you would have completed the maximum interest repayments during the early stages.

So, if you want to switch your home loan, it’s best to do so as early as possible in the tenure rather than waiting until the end.

Understand your credit score

Lenders have tightened their eligibility requirements for home loan approvals in recent years. Credit scores, in addition to determining borrower eligibility, significantly impact the interest rate you are offered. It is important to note that even if the lender advertises a low-interest rate, you may not be eligible for it if you have a low credit score or rating. So, before approaching a new lender for a home loan transfer, be aware of your credit score.

Determine the cost of refinancing

Before you refinance your home loan, you must determine whether you will benefit from it. Begin by calculating the transfer cost, which includes the closing fees charged by your current lender, the processing fees charged by the new lender, and any other fees. Next, compute your savings as a result of the transfer. Finally, before making the switch, ensure the savings outweigh the costs.

Don’t fall behind on your EMI payments

When you apply for a house loan transfer with a new lender, the new lender will contact your existing lender. The new lender will most likely scrutinise your previous repayment records. If the lender notices late or missed payments, they are unlikely to approve your home loan refinance request.

Check for any prepayment penalties or foreclosure fees

In India, the Reserve Bank of India (RBI) has prohibited lenders – banks and housing finance companies – from imposing prepayment penalties on home loan borrowers. It is true for both fixed-rate and floating-rate loans. However, when you transfer your existing home loan to a new lender, the lender may impose prepayment penalties for the new tenure. Before choosing a new lender, make sure to inquire about any such fees.

The new lender’s fees for the transfer are negotiable

The new lender will charge you a processing fee when you transfer the loan. Borrowers with a strong credit history are more likely to have their processing fees waived. You can negotiate with the new lender to waive the processing fees if you have paid all your previous EMIs on time and have a good credit score.

Certain lenders charge no processing fees for home loan transfers. When choosing a lender, look for banks or housing finance companies that do not charge processing fees for balance transfers.

Examine the new lender’s interest rate track record

Borrowers are frequently enticed by “discounted interest rates” advertised by lenders. However, these rates may not be long-term and only available for a limited time. Double-check that the proposed mortgage loan interest rates are genuine and available for the long term rather than a gimmick to avoid such traps.

Provide the new lender with all property-related documents

Home loans are secured loans, and you must provide the necessary documentation. When applying for a home loan, most borrowers submit their property-related documents to their current lender.

You must request that your current lender send all required documents to your new lender within a certain time frame. Because home loans are high-value, secured loans, the new lender will keep all of your documents as collateral until your loan is paid off.

Take Away

Home Loan refinancing allows you to transfer your current mortgage to a new lender of your choice. This action allows you to obtain a more competitive Home Loan interest rate, lower your EMIs, and even obtain a Top-up Loan over your Home Loan amount.

This change is especially beneficial for those unhappy with their current Home Loan terms wanting to revisit them to make them more feasible.

If you think you might benefit from refinancing your mortgage right now, the first step is to find out for sure. To find out the specifics of a possible new loan, like mortgage loan interest rates etc., you can use one of the many refinancing calculators available online or speak with your financial institution. Compare your current and prospective new mortgages carefully to see if a refinance is the best option for you.

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