What is Refinancing | Why you should consider refinancing? | How to Refinance Home Loan

Описание: What is Refinancing for Home loan?

Home Loan Refinancing is like hitting the refresh button on your home loan. It involves transferring your existing home loan to a new lender or renegotiating the terms with your current lender. It can help you save money on interest payments, reduce your monthly EMI, or shorten the loan tenure.

When should you consider Home Loan Refinancing?

Okay, so you might be thinking, "When should I consider Refinancing Your Home Loan?" Well, there are a few different scenarios when it could be worth considering:

1. When you’ve time left on your loan

Refinance early – probably the first half of loan tenure, when your EMIs focus on interest payments, is the best time

2. When you get a lower rate

The biggest chunk of a home loan is interest. A loan cheaper by 50 bps or more could lead to a shorter loan tenure & lower EMIs. If you get lower interest rates as compared to the rate when you took your home loan, refinancing could help you get a lower rate and save you money on your monthly payments.

3. When the costs justify it

Refinancing generally costs 1-2% of the loan. If the projected savings exceed that cost, you should consider refinancing

4. When your income has increased

If your income has increased since you took out your home loan, refinancing could help you reduce your loan tenure and save on interest payments.

5. When you need a new benchmark

Home loans linked to benchmarks like MCLR or Prime Lending Rate may be costlier compared to loans linked to Repo rate. Do consider refinancing you loan with the rate linked to Repo rate. It will be beneficial for you.

How to Refinance your loan in 5 Steps.

Step 1: Assess the loan

If your loan is competitively priced, you don’t need to refinance.
Let’s call the interest paid ‘A’.

Step 2: Check with lender
If your lender offers a lower rate, ask to be moved to the lower rate by paying a processing fee.

Step 3: Calculate savings from Step 2. Let’s call this amount ‘B’.

Here, the Savings will be = Interest saved- Costs of refinancing

Step 4: Get the lowest rate

If the lender does not offer a competitive rate, approach another lender and ask for the lowest rate and assess the costs of refinancing.

Calculate savings and let’s call this ‘C’.

Step 5: Choose the best option

Compare ‘A’, ‘B’ and ‘C’.

Choose the option that offers the maximum benefit.

Evaluate all benefits to take a well-informed decision.

Example:

Let’s see how refinancing could save you money with the example.

Say you took a home loan of Rs. 50 lakhs at an interest rate of 10% for 20 years in April 2011. Your monthly EMI would be around Rs. 48,251, and the total interest to be paid over 20 years would be around Rs. 65.8 lakhs.

Now, as of May 2023, you have an outstanding balance of Rs 32,65,049 and remaining interest is Rs 15,60,060.

Now, if you refinance the same loan to a lower interest rate of 9% for the remaining 96 months, from your own lender paying a processing fee of 5,000, your monthly EMI will come down to Rs 47,834 and net savings on interest payments will be Rs 2,33,082.

Also, if you want refinance the same amount to a new lender who might charge processing fees of 1% of the loan balance, in that case your monthly EMI will come down to Rs 47,834, but your net savings on interest payments will only be Rs 2,00,432.

So, there you have it. Home Loan Refinancing could be an option worth considering if you want to save money on your monthly repayments or reduce your loan tenure. Just remember to compare offers from different lenders and choose the one that best suits your needs.

Time stamps -

0:00 What is home loan refinancing?
0:43 When should you consider Home Loan Refinancing?
2:01 How to Refinance your loan in 6 Steps
3:00 Home loan refinancing explained with example

#homeloan #homeloaneligibility #loanrepay #interest #personalfinance #refinance #loanrefinancing #loans #creditscore #reporate #mclr #loanemi