Refinance home loan means getting loan from another lender to payback the existing loan amount. Two major reasons why people switch over to a house loan (refinancing loan) are firstly to avail the benefit of getting lower rate of interest and secondly to get a top-up on the original loan amount. However, besides these two, they can be various reasons which might range from personal to financial for getting a refinance home loan.
3 reasons why one should go for a home loan refinance:
- Saving on the interest cost- this is perhaps the staunchest reason why people shift to another home loan in order to pay the lesser interest. For example, if a borrower is paying a higher interest rate on his home loan that is offered by a lender, generally he would be tempted then to shift to a new loan which brings down the interest cost of his previous loan, and consequently bring back his loan amount.
The declining interest rate in the market is one of the common reasons why people generally for refinance home loan, which brings down their interest rate. But it should be borne in mind that not every lender reduces his interest rate when the economy falls. There are also lenders who do not reduce the rates in spite of the falling market interest rates.
- Moving to fixed loans from floating loans or vice versa- the home loans customers are in either of the scenarios. In the first scenario, they might be paying a floating interest rate on their loan and they see a benefit in shifting to a fixed loan that would help them in cutting down on their interest rates, by fixing their EMI for a period of time.
The other scenario is where the borrowers might be stuck up with a high interest rate at a floating home loan because interest rates on a floating rate loan is higher than the floating loans, so in this case the borrowers might be willing to shift to a fixed loan to cut down on interest rate.
- Loan opportunity- another reason why people should or general go for home loan refinance is because of the loan opportunity. It is a lucrative opportunity for a loan which is also known as the Top-Up at the various prevailing home rates in the market. For instance, an individual took a loan of INR 40 Lakh to purchase a property of INR 50 Lakh years ago. After paying his EMIs for consecutively five years, let`s now assume that the value of the loan amount has come up to 30 Lakh, but at the same time, value of his property has shot up to 1 crore. This gives him the leverage to get a top-up or loan amount up to INR 80 Lakh if he wants. However, he cannot take the full amount since he has outstanding balance of 30 lakh which he would have to fully payback before availing the full new loan.