Rohit had taken a home loan from a bank for a period of 20 years. The rate of interest on the loan was 13%. When his friend told him that his bank was offering home loan at 11%, he decided to switch over to the new lender. This is called as refinancing the home loan.
Why refinance? For one, it reduces your EMIs. Lower EMIs means you save money. Also you have the option of changing from current high-interest floating rate to low-interest fixed rate. Lastly, your loan tenure will also decrease, thus enabling you to repay your loan faster.
How to refinance your home loan? Well, here are some steps that you need to follow to get your home loan refinanced.
- Check your present home loan: Find out how much you are paying for your current home loan. Check the charges levied by your home loan lender.
- Understand your need: Are you looking to refinance in order to save money? Do you want to speed up your repayment tenure?
- Select the suitable refinance lender: Compare the offerings of various lenders available at various online loan comparison websites. Check the interest rate, terms and conditions and charges and fees of different lenders. Also check out the customer service of selected lender.
- Give the lender an estimate of the value of your property: Show the lender estimated worth of your property and how it has increased over the time. The lender will take into account this value before approving your loan. You will also have to submit details of your income, expenses and other liabilities. This will help the lender decide the amount you are eligible for.
- Start the closure procedure with your current lender: Once your loan is approved, start the closure procedure with your current lender. Your new lender will process your loan after receipt of valid documents.
We all know that interest rates on loans tend to fluctuate. Even a small reduction in rate in the interest rate on home loan can end up saving you a substantial sum of money. Moreover with the stiff competition prevalent amongst lenders, you are sure to get a far better deal, if you opt to switch your home loan lender.
However changing lenders is not as easy as it sounds. You need to be aware of some things before you take the decision of changing the lenders. Here are some things to watch out for.
Weigh the savings vis-à-vis the costs of switch over: When you decide to change your lender, calculate the costs involved in transferring the loan. Most banks charge prepayment penalty that can completely wipe out your savings. Also the new lender will charge processing fees in order to process the loan. Watch out for these costs before you decide to change over.
Loan tenure: If you decide to change the lenders, either your EMIs may reduce or the loan tenure can reduce, if your EMIs remain constant. Though you may have to pay foreclosure charges, it is still worth it, since the savings will be significant.
Find out the duration for which the low rate is applicable: Most lenders offer low rates for the initial few years, after which it reverts to the bank’s actual rate. Most of the times, this rate is higher than what you are currently paying, so watch out.
Use loan comparison websites: With the advent of technology, you can compare the loan offers from different lenders in the convenience of your home. You can also find out how much you will save by switching the lender.
Quality of customer service: Find out if the lender can provide you with good quality customer service. Check its reputation on various websites offering user reviews. It will give you an idea of what to expect after switching over.
While it is great to change lenders in order to benefit from lower interest rates, you should also look at the above factors to get the best deal.