Should you refinance your home loans if the rate of interest is falling?

When you choose a home loan, you are always keen on receiving the best possible finance solutions, be it a higher principal amount or attractive interest rates with long tenures. Even if you have an ongoing home loan, you can always make the most of the current economic and market trends. In all probability, you have the option to choose a home loan with a better interest rate or if you want to borrow more funds. This particular instance is known as home loan refinance. Refinance of loan is done to get a better or lower interest rate, to avail top up of more funds, reduction of the loan tenure and many more reasons. Refinance is transferring your present outstanding loan amount to a new lender, either a bank or financial institution. If you do intend to refinance your loan, you should opt for enhanced terms of the loan. 

When should you refinance your home loan?

Here are the main reasons when you should consider to refinance your home loan. 

• Lower Rate of Interest 

The most essential and common reasons to refinance a home loan is when the rate of interest is falling. No one is keen to pay a higher interest rate. If the new lender offers a better interest rate, it not only brings down the total interest cost but subsequently the EMIs also decrease. A decline interest rate scenario leads to several borrowers opting to refinance loan. Most of the home loans are floating interest rate loans. It means that they are associated with the overall macro interest rate trends. Not all the lending banks or financial institutions reduce the rates they charge on their loan when there is a rate cut. At times the rate could be reduced after a hold up from these lenders. The reductions are as per the base rate falls. 

• Switch from Floating Interest Rate to Fixed Interest Rate or the other way around

A fundamental situation to consider for home loan refinance is when a borrower may be shelling out a high floating interest rate. Hence, shifting to a fixed interest rate for a home loan seems like a viable choice. It would maintain the consistency of their EMIs( Equated Monthly Instalments) for a specific period. On the other hand, the borrower may be caught in the middle of a fixed home loan with high-interest rates. Do keep in mind that fixed interest rate loans are predictably at a higher rate of interest than a floating rate loan. In this instance, there could be a possible realisation that the overall interest rates have declined and a floating interest rate is a cheaper and better option than their existing loan. It is a crucial aspect for the loan opted for home refinance.

• Additional Top- Up of Loan Amount 

Refinance of your home loan is not only limited to the rate of interest declining but also if your funding needs have increased after taking a loan. It could be various reasons as a change in design, inclusion of another floor, renovation of an existing home, and so on. In this case, to opt for refinance loan of your present home loan is the ideal option to avail a more significant amount of funds.

• Reduction of Loan Tenure

When you first opted for the home loan, you would have chosen a longer tenure for repayment. Nonetheless, if your financial position has improved compared to when you took the home loan. You can select home loan refinance and reduce the tenure of the loan. Though your EMI amounts may increase, you will settle the loan amount much sooner.

• Reduction of EMI Amount

At times you may face financial hindrances which in turn has decreased your monthly revenue. Due to this financial obligation and to lessen the burden of repayment, you could opt to refinance your home loan. Select the loan with a longer tenure which would reduce the EMI amount.

• Deterioration of Bank Services

After disbursement of your loan, your banks or financial institutions service may begin to decline and not meet your standards. Instances such as delay in issuance of loan statements, appalling customer care services for any grievance redressal, slow in updating of interest rates is a good indication for you to switch to another bank or company to refinance your home loan. 

Though refinance of your home loan is an individual option in case of the reasons listed. However, it should not be a rash or impulse decision to do so as a lot of financial factors such as legal fees, processing fees, additional incidental charges with the new bank or financial institution, prepayment charges, are involved. It is imperative to take a calculative judgment. Do check with your bank or home loan company before you step out to refinance your home loan. 

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• How To Choose The Right Home Finance Company In India
• How To Plan Your Finances To Buy A House In 2018

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