Home Loan Refinancing Can Ensure Big Savings – Here’s How  

Home Loan Refinancing Can Ensure Big Savings – Here’s How   

The concept of home loan refinancing, which is also commonly known as home loan balance transfer, has gained immense popularity in India. It is a unique facility that allows you to transfer the outstanding home loan to a new lender. 

Transferring the home loan from your existing lender to a new housing finance company or a bank is helpful only if the new lender is offering the loan at a lower interest rate. When you choose home loan refinancing, the new lender pays the outstanding amount to the old lender and opens a new home loan account for the balance amount. 

Before you opt for a home loan balance transfer facility, it is paramount that you compare the interest rates offered by both lenders. If you are convinced that you are getting a better offer from the new lender, you can expect the EMI to be lower, and thus you can manage the repayments more efficiently. 

While you may do your research about the new lender, they will also do their due diligence and assess your eligibility, and determine the interest rate based on your credit score, repayment history, income levels, etc. Once you submit the necessary documents and complete other formalities, the loan gets transferred to the new lender, and you can repay the amount at revised interest rates. 

Home loan refinancing can help you reduce the overall interest payout by a significant margin and ensure big savings in the long run. Let us understand how this works with an example. 

Let’s say, Miss. Jasmine Arora availed a home loan of Rs. 1 crore with XYZ bank at a 7.1% interest rate per annum for 20 years. Now, Miss. Arora realises that her lender is charging a higher interest than the existing market rate, and there are other lenders that offer home loans at 6.7%. So, there is a difference of 0.4%. Now, if she opts for a home loan refinancing and switches her loan to a new lender, she can save about Rs. 7-8 lakhs over a period of 20 years. 

You can use the home loan EMI calculator to know the difference in the EMI amount as per the new interest rate and the amount you can save in the long run.

Why should you choose to refinance your home loan?

First and foremost, home loan refinancing helps you repay the balance amount at a lower interest. This means your EMI will be lesser than before, and you can save a lot on the overall interest payment. 

If you are not happy with the services offered by the current lenders, you can opt for a home loan balance transfer and enjoy better services. The new lender may give you better flexibility in terms of repaying the loan, or you may get an extension of home loan tenure, which could further reduce your monthly EMI amount. 

When should you choose a home loan balance transfer?

Experts suggest that it is better to go for a home loan balance transfer during the initial years of the loan when a major portion of the EMI amount goes towards repaying the interest part of the loan. Let us assume your financial position has improved, and you have a high credit score, but your current lender is not willing to reduce the interest rate; you can explore refinancing options and transfer your loan to a new lender that offers the loan at a lower interest rate.

Also, when you need additional funds to renovate your home, you can avail of additional funds at the time of refinancing. 

Final Word

When you opt for home loan refinancing, factor in the difference in the interest rate and check how it affects your EMIs and tenure. Refinancing may involve incurring additional costs, such as processing fees, documents verification fees, etc. So, it is advisable to do a cost-benefit analysis before making the final decision. 






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