When is Home Loan Refinancing a Good idea?
What is Home Loan Refinancing?
It Simply means applying for new Home Loan from New lender to pay off the current Home Loan.
Basic Reasons for Refinancing Home Loan
The most Important reasons for Refinancing Loan are:
To get benefit from the lower interest rate.
To get a top up from existing loan.
However, there are three other reasons for Home Loan Refining as Follows:
Save on Interest Component
The most basic reason is if a borrower pays higher interest for Loan and if the another lender is proving a lower interest rate, then he would prefer to shift to that lender, as it would decrease in his monthly EMI payments.
Shifting From a Floating rate to a Fixed rate of Interest
You can shift from Floating to fixed rate or vice versa, based on the benefits from the Home Loan. Here, if you feel stuck in floating and your lender is providing fixed rate and it's lower, you should go for it. In Fixed Interest rate loan, EMI would be steady for a period of time.
They may also apply charges on shifting, but that are minimal, you can neglect it. But after shifting you will save more money.
Beside Home Loan Refinancing, a Borrower can also select for a Top-up Loan for extra funding. It is a very nice idea to apply for a top-up from a new lender if you get lower interest rate. But if the interest rate is similar you should apply for the top-up from the current lender. By doing this, you don't need to pay any loan refinancing charges.
You get a great chance of getting a top-up loan from existing lender if your repayment history is good and value of the property is appreciated over time.