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When rates are low, it’s tempting to refinance your home, because your monthly payments will go down, and you’ll get some extra cash.
Only people with the best credit qualify for the lowest rates.
Finally, stop thinking of your house as an ATM machine. The purpose of a 30-year mortgage is to have it paid off when you retire, to reduce your expenses when your income decreases. Borrowing from your home will keep you house poor.
Refinancing a home loan means availing a new loan from another lender to pay off an existing one. Two primary reasons for refinancing are: 1) To get the benefit of a lower rate of interest and 2) To avail a top-up on the original loan amount.
1.Saving on interest cost:-
This is the most common reason for shifting the home loan to a new lender. If an individual, for instance, is paying higher interest on an existing home loan than that offered by another lender, he would naturally be tempted to go for a new loan that brings down his total interest cost and consequently his EMI.
2.Moving from floating rate loans to fixed loans or vice versa:-
Home loan customers may be in any of these two scenarios. They may be paying a high floating interest rate and therefore are likely to see value in moving to a fixed rate home loan, in which case their EMI will be constant for a certain period of time. Alternatively, they may be stuck with a fixed home loan at a higher rate (fixed rate loans typically are at a higher rate than floating rate loans at any point of time). In this case, they may realize that the overall interest rates have moved southwards and floating rate loans are much cheaper than their existing loan and there is value in switching the loan. In both these scenarios one may like to opt for refinance.
3.Additional loan opportunity:-
Along with home loan refinance, customers also have an option of taking incremental funding (also known as top-up) at the prevailing home loan rates.However, you should opt for a top-up of your loan from another lender only if you are getting the benefit of lower rates, otherwise try to get it from your existing lender as that would be easier and you also won’t have to incur charges for getting the loan refinanced. “Should you plan to switch your housing loan to avail the ‘top-up’ option, I would advise you to approach your existing bank for a top-up plan, in case the interest rates are similar. If your loan repayment track record is good as well as the value of the property has appreciated, there is a good chance that the existing lender would consider your request for a top-up.
4.Poor service of the existing bank:-
If the bank from which you have taken your home loan does not service you properly- for instance, if it does not issue loan statements on time, provides bad customer care services or is slow in reacting to changes in interest rates-there is every reason for you to get your loan refinanced from a lender which is known for providing good services.
5.Change in financial status:-
Any increase or decrease in your income would affect your ability to service your EMIs. In case your monthly income has decreased due to any reason or another financial obligation has come up, refinancing a home loan by replacing it with one with a longer tenure is a good idea to reduce your EMI amount. “On the other hand, in case you are in a better financial position compared to when you had taken a home loan, it may be a good time to opt for home loan refinance and reduce the tenure of the loan, thereby increasing your EMI amount but making sure you will be now be able to repay your home loan sooner.