Refinance a Home Loan means taking a new loan to pay off the debts of your older loan. There can be various reasons why people choose to refinance like obtaining a lower rate of interest, shortening the tenure of the Housing Loan or even to consolidate your debt.
Here are a few reasons why people want to refinance their existing Home Loan:
1. Getting a low rate of interest:
This is one of the most famous reasons why people choose to refinance their Home Loans. The Equated Monthly Installments (EMIs) that you pay are considered a major part of your expense on a limited income. Paying a lower rate of interest is always a good idea because it will help you have some extra money in your pockets at the end of the month. You can use this extra money to invest in things like fixed deposits and mutual funds. Thus lowering your rate of interest will help you save some money and build equity.
2. Lowering the tenure of your loan:
The tenure of your Housing Loan is another reason why people opt for Home Loan refinancing. The Home Loan owners have the perfect opportunity to change their House Loan tenure when the interest rate falls. For example, if you have a House Loan of INR 1,00,000 at 9% and the tenure of your House Loan is 30 years. Then after refinancing your Housing Loan from 9% to 5.5%, you can cut the tenure of the House Loan in half, i.e. 15 years.
3. Changing your type of rate of interest:
There are two types of interest rates on Home Loan. One is called as a fixed rate of interest which offers a fixed rate of interest every month and the other is called as floating rate of interest where the rate of interest that you pay is highly dependent on the current market rate of interest. If you have opted for a floating interest rate and want to change to a fixed interest rate, you can choose to refinance your Home Loan. People usually decide on a floating interest rate as the interest that you’ll have to pay keeps changing and it can go extremely low which is beneficial for a lot of people. But the disadvantage of a floating interest rate is that the rate of interest can go higher than the fixed rate of interest which can turn out to be a huge loss for people.Once you opt for a fixed rate of interest, you can be sure of the amount of Equated Monthly Installments (EMIs) you’ll have to pay every month and this is one of the reasons why people choose to refinance their Home Loans.
4. Debt consolidation:
You can also refinance your Home Loan to pay off the debt that you have. When it comes to paying the debt, a low rate of interest is any day better than paying a high rate of interest. You need to be extremely careful when you opt to refinance your Housing Loan as you need to make sure that you do not overspend once you are out of debt.Some financial institutions or lenders might charge some extra fees to refinance your Housing Loan and you need to think beforehand if you can manage the extra charges. Applying a Home Loan is a commitment for life and you will need to do a proper research before taking a House Loan or refinancing your existing Home Loan.