Safe to say, Indian Home Loan borrowers are in for great gains of late. The cuts in the Reserve Bank of India’s (RBI) repo rate has led to a significant drop in interest rates. The Home Loan sector is further accelerated owing to a large number of available schemes such as PMAY as well as other flexible repayment facilities. The new provisions in the segment, however, do not serve existing Home Loan borrowers. If you are already servicing a Home Loan, it is a good time to switch your loan and take advantage of the favourable rate cuts.
As a Home Loan borrower, your primary goal must be to look for ways to reduce your debt, save money, and build equity over time. It is not necessary to be bound to one lender throughout your Home Loan tenure. Typically, a Home Loan is granted for a tenure of anywhere from 15 to 30 years. It is important that you monitor your loan account throughout the Home Loan tenure period. This helps stay on top of things and understand whether you are availing the best rate of interest. Moreover, if you believe that your interest rate is too high, you can opt for Home Loan refinancing.
Switching your Home Loan is a good option; however, you must evaluate several factors to know if it is the right move for yourself. These include:
The first thing to do is compare your interest rate with the potential rate of interest that you can avail. A significant drop in the rate of interest will greatly bring down the EMI costs. If you do feel that your EMI is lowering to staggering levels upon switching, then you must definitely opt for a Home Loan switch. At the very least, the difference in interest rates must be a minimum of 0.5% to enjoy significant savings on your EMI. You can direct these saved funds towards pre-paying your loan principal in the future.
However, you must note that a lower interest rate should not be the only parameter you consider while switching your Home Loan lender. You have to also consider the processing fees and other charges that are likely to mount up when making the switch. If the total amount is higher than the rate that you are paying, it is not suitable to refinance your loan.
If you are looking to get a loan top-up on your existing loan, refinancing your Home Loan is a good way to go about the same. This is especially because some existing lenders do not lower the rate of interest on top-up loans. A new lender could offer you a lower rate of interest as well as a top-up to make for a good deal.
Sometimes, refinancing the Home Loan can bring down your loan tenure. So, while you continue to pay the same amount as Home Loan EMI, you will be paying it for a shorter term owing to the drop in the interest rate. Suppose you pay ₹40,000 per month at present for the next 10 years, you could be paying the same for 8 years with another lender.
Ensure that your new lender offers just as many or more facilities as your existing lender. These could include good customer service, quick processing in times of amendments, and more. In the long run, these aspects do affect your experience and make it easier to service the loan. So, always ensure that you can get a good value experience with the switch.
Once you have assessed your profile and have decided to make the switch, you must contact your existing lender. You can talk to your lender about the offers you are receiving and why you wish to switch. If the lender feels like the offers can be matched, then its customer retention team will drive a plan to help you stay. If not, you can move on to a more value-added deal that helps you effectively manage your debt.
Refinancing your Home Loan can indeed be a successful financial move if it positively impacts your total mortgage. From reducing your repayment outflow to building equity, the pros of Home Loan refinancing are numerous. However, as with every financial decision, it is imperative to evaluate your situation before you take the leap. Visit Finserv MARKETS today and get the best solutions for your Home Loan.