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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Important Things to Remember While Transferring your Home Loan

Besides lower interest rates, home loan transfer also accompanies a range of benefits like better service, pre-approved offers and many more. 

However, to leverage the optimum advantage, individuals have to consider a few things. Here are some of them. 

1. Time of refinancing

It plays a crucial loan in determining the profitability of this facility. Generally, in the initial stages of repayment, individuals mostly service their interest liabilities. Thus, it is often wiser to opt for this facility during the first half of repayment term. 

Financial experts also suggest avoiding this option after 3 years of repayment.  

2. Negotiate Interest rates

Before switching a lender, existing borrowers should negotiate with their lenders for better home loan interest rates. Lenders often offer revised rates to those with an impressive repayment history. 

Thereby, individuals can save on several charges that are applicable while availing this facility. 

3. Additional charges

Typically, a home loan refinancing comes with several charges that borrowers are entitled to pay. For instance, borrowers need to pay processing fees, foreclosure fees, inspection fees, administration fees and others. 

Thus, before approaching a new lender, borrowers have to weigh if the charges are worth the transfer. For more clarity, they can also use a home loan balance transfer calculator to estimate the cost of this facility. 

4. Repo-rate linked loans

RLLR or Repo-rate Linked Lending Rate is determined by RBI. If the repo rate decreases, the interest rates also decrease and vice-versa. Since interest rates are subject to the market scenario, individuals may have to pay a higher interest rate than before in the event of rate hikes. 

On the other hand, borrowers get immediate relief when RBI cuts repo rate, resulting in reduced EMI outgo. 

5. Credit report 

The eligibility for this facility also relies on the credit history of the borrower. Lenders generally offer loan transfer facilities only to those who have an excellent repayment history and a credit score of 750 and above. 

Hence, keeping these facts in mind, individuals can make most of this home loan transfer facility and lower their home loan EMI burden. 

Read Also: Increase You Home Loan Eligibility: 5 Points to consider

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