When it comes to home loan refinancing, you should certainly consider a few things. Home loan interest rates were lowered majorly in 2017 by several lenders. The repo rate has also been lowered by the RBI over the years and this benefit is now steadily accruing to home loan borrowers. This makes for a good period to refinance the home loan you are currently repaying in case you get a better deal at another lender and if you think you are still paying a higher rate of interest on the loan. You should first check whether your home loan is tied to the MCLR or base rate. In case you have taken your home loan between the 1st of April, 2010 and the 31st of March, 2016, it will be linked to the base rate.
In case of these loans, it will take a long time before you start seeing the benefits of a lowered repo rate. In case you have taken a loan after the 31st of March, 2016, it will be linked to the MCLR and hence your benefits will be faster since there are specific reset periods of 6 months or a year after which rates are reset. You should first shift your home loan to the MCLR system. You should work out the total gains from refinancing your home loan.
You can refinance the home loan in order to get the benefits of a lower interest rate and subsequently, a lower EMI. You should however understand the entire cost of the loan since you will take a longer duration to clear the same and a lower EMI will mean that you will end up paying more interest in the long run. If you are refinancing your home loan within just 4-5 years of your loan tenor, you should definitely go ahead since the EMI’s interest component will be higher in this period. As a result, you will benefit from a lower interest rate. However, if you are nearing the end of the home loan tenor, it does not make sense to switch since the principal component is majorly being repaid now and you will not benefit that much.
You can always go for negotiations with your present lender. Try to pitch for a lower rate of interest in case you have a good credit record, timely payment history and zero defaults. You can ask for a lower interest rate or a longer tenor. You can also go for a home loan balance transfer and shift to a home loan with a lower rate of interest being offered by another lender. Do your research on the interest rates, charges, legal fees, mortgage fees and other expenditure involved in home loan balance transfers to other lenders. Ensure that you have good repayment clauses covering both foreclosure and prepayment. Get an NOC from your present lender and the documents for your original loan once you have made your decision. You can then fill up the application form, transfer the loan and submit all necessary documents in this regard.
You can make use of the lower interest rate post a home loan balance transfer for repayment of the loan over a shorter period of time. This will help you accumulate greater savings in terms of the interest outgo. You can also enjoy the lower EMI and save more every month with a view towards maximizing your money in a parallel manner.