In October 2019, the RBI made it mandatory for financial institutions to link their lending rates to an external benchmark, thereby leading to a decrease in the home loan interest rates. Even though this decrease in interest rates has benefitted the borrowers, linking the lending rates to an external benchmark also implies that interest rates might increase at any point during an individual’s loan tenor.
To counter this situation and avoid paying higher interest for a home loan than available on the market, financial institutions offer the facility of home loan refinancing. This facility, also known as home loan balance transfer, allows borrowers to switch their existing home loan to a lender offering more affordable home loan interest rates and save a substantial amount on their EMI payments.
What is home loan refinancing?
It refers to the process of availing a home loan from a new lender to pay off an already existing advance. With this facility of home loan transfer, the new lender repays the outstanding loan amount to the existing lender.
The borrower, in turn, repays their outstanding loan amount to the new lender by following the new interest rate regime imposed by the Housing Finance Company.
Reasons to opt for home loan refinancing –
There are several reasons to refinance a home loan now. Some of the most crucial among them are as follows –
- Availing easier interest rates –
Shifting to a lender offering reduced interest rates allow individuals to significantly reduce their monthly interest payment and manage their EMIs effectively. Since the lending rates of financial institutions vary according to various macro rates in the economy, home loan balance transfer facility ensures borrowers that their home loans remain affordable, thus reducing the chances of defaults. Opting for home loan balance transfer helps you save money in the long run.
- Switch from fixed to floating interest rates –
Home loans come with a long tenor, and consequently, there are individuals who are still under the purview of a fixed interest rate regime. Opting for a home loan refinance allows borrowers to shift from fixed to floating interest rates, thus allowing them to enjoy the benefits of a comfortable interest rate.
- Avail a top up loan on the existing loan amount –
Individuals can avail a top up loan on their existing loan amount by opting for balance transfer facility. The top-up loan interest rate remains the same as the prevalent one, and this additional amount can be utilised to finance any unforeseen expenses (top up loans do not come with any end-use restrictions) that might arise in due course.
Before opting for a balance transfer, individuals should also check the associated charges that the lenders, both old and new, can levy on the home loan balance transfer facility. Individuals should also check the eligibility criteria for availing this facility. For instance, some of the stipulated criteria include –
- The property should either be already occupied or ready to be occupied.
- The borrower should have already paid more than 12 EMIs on the existing loan.no. of EMIs may vary between lenders.
- Borrowers should not have any outstanding dues associated with their credit.
To ensure that the home loan balance transfer is completed without any hassle, individuals should comply with the above-mentioned criteria. One should also go through the list of documents required for home loan refinancing before opting for the process.