Best Time to Refinance Your Home Loan: A Complete Guide

Home loans come with remarkably long repayment tenors, ranging from 15-20 years. Such an extended period can entail several changes in one’s financial position and make it increasingly difficult for borrowers to chalk out an effective loan management plan.

Consequently, repayment difficulties, plus reductions in home loan rates as seen now, prompt many borrowers to seek refinancing. However, individuals need to time their home loan transfer depending on the following factors to ensure optimum savings.

• Changes in financial position: Unprecedented circumstances leading to an increase or decrease in income is very common. Borrowers can choose balance transfer if their current lender is unwilling to adjust the home loan EMI terms to facilitate ease of repayment. 

• Lower interest rates: One of the most prominent reasons for individuals to choose housing loan refinancing is a decrease in interest rates. Several financial institutions refuse to lower the floating interest rates of existing loans upon a repo rate cut. In such cases, borrowers can switch to a lender offering lower rates. A loan transfer can also be helpful if you are willing to switch from high fixed rates to lower floating rates.

• High outstanding and tenor: Interest component of home loan EMI decreases over time, with each EMI payment. Thus, seeking home loan transfer is a wise option only during the early years, preferably the first quarter of your tenor, since it ensures maximum interest savings.

Note that irregular EMI payment history with your current lender can lead to poor home loan eligibility and might deter a refinancer from approving your application. 

Also, make sure the total cost of refinancing, including processing fees, transfer charges, valuation fee, etc., does not exceed your anticipated interest savings. Stay updated with the latest regimes for home loan tax benefits to enhance the interest savings availed through a balance transfer.

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Top Benefits and Uses of Home Loan EMI Calculator

 Securing a lump-sum credit to purchase your dream house might sound appealing. However, it might not be a convenient choice if not planned efficiently. These large sums are accompanied by substantial interest components and can result in hefty repayments. Defaulting on an instalment due to financial constraints in the course of a loan can negatively impact a borrower’s credit score. Using an EMI calculator before applying can help individuals plan their repayments more effectively.

Following are some significant ways in which an EMI calculator can benefit potential borrowers.

1. Accuracy and speed: EMI calculation involves a complicated procedure, and manual computation can result in discrepancies. Using a home loan EMI calculator provides accurate results within just a few seconds.

2. Effective financial management: An EMI calculator displays the total payable amount, EMI and the interest component separately. Individuals can adjust their inputs until these results match their home loan eligibility and affordability. Picking a suitable tenor and loan amount can aid in smooth repayment.

3. Comparison: Since interest rates vary across lending institutions, using an EMI calculator can help users compare monthly repayments under different lenders easily.

4. Free and easy: Home loan calculators are available on almost all financial institutions’ websites, free of cost. They are also easy to use. Individuals only need to enter 3 inputs to get the results.

Potential borrowers can enter the following details to view their payment breakup.

• Required principal amount

• Interest rate

• Preferred tenor

Note that a longer tenor might result in smaller home loan EMI payments but will lead to increased interest cost in the long run. Conversely, if you can compromise your luxuries for higher EMIs, choose a shorter tenor and save remarkably on interest payments.

Also, be aware of home loan tax benefits under the tax regime you have opted for, new or old.

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You Should be Aware of Which Home Loan Tenure is Right for You

A home loan is a convenient financial solution for individuals looking to invest in residential property. Potential borrowers can avail up to Rs.3.5 crore under this funding solution to use for constructing or purchasing a house. 

Nonetheless, availing a housing loan also depends on certain factors, where tenor plays a crucial role.

Factors to consider when choosing the home loan tenor

• Monthly income

Understanding home loan EMI aids borrowers in the systematic planning of monthly outlays. An individual’s income stability plays a crucial role in determining the home loan tenor. In this scenario, an applicant must know that opting for a shorter tenor would mandate paying higher EMI. Comparatively, selecting a longer tenor would decrease the EMI but increase the total interest outgo. 

Hence, a shorter tenor is a compatible option, as it reduces the chances of accumulating higher debt in the long run. An individual with a stable income can request a lender for a befitting tenor option.

• Age

Age is again a crucial factor when deciding a home loan tenor. Lenders give more preference to young borrowers who have more workable years. They easily approve a young borrower’s request to repay the outstanding amount over a longer tenor. Most NBFCs set an age limit of 23 to 62 years for salaried individuals under home loan eligibility parameters.

•  Housing loan interest rate

The applicable home loan interest rate also affects the loan tenor. Usually, this interest rate is revised from time to time, where a longer tenor can significantly increase the interest payment. Comparatively, shorter loan duration decreases the chances of the interest rates being revised to become higher. One can use the housing loan EMI calculator on a lender’s platform to calculate the exact rate of interest.

These few tips can help the housing loan borrower to opt for a suitable tenor that would facilitate ease of repayment.

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