Loan refinancing is a method when you take out a new loan at the lowest refinance rates from another lender to repay an existing loan. Refinancing a home loan is done to receive a lower interest rate. However, there are many reasons to take out a loan to repay an older one. Here we share the reasons with you so that you could stay ahead of any unforeseen circumstances.
You save on interest rates
It is the most common reason to transfer the home loan to another lender. If an individual is paying more interest on an existing loan compared to one offered by another lender, he might be tempted to get a loan with a lower interest cost and EMI. Most home loans are based on floating rate. Some lenders lower the interest they charge on loans when general interest rates fall, while others do not.
Transferring from floating rate to fixed loan
These two situations could be the case for home loan customers. A floating rate may make it difficult for them to move to a fixed-rate home loan. In this case, their EMI will remain constant for a set period and not permanently. Fixed rate loans are generally more expensive than floating rate loans. In such cases, it might be worth switching to a loan. Refinance is an option in both of these situations.
Refinancing offers other features
Customers also have the option to take incremental funding at current home loan rates. If you are getting lower rates, it is best to choose to top-up with another lender. Otherwise, try to get it from your current lender. It will be simpler and you will not have any fees for the loan refinanced.
You do not get enough support
If your bank has not been able to service your home loan properly, such as if they don’t send you loan statements on time, provide poor customer care or slow down the process, you should seek a lender that is well-respected for offering good services.
Financial status changes
Your ability to pay your EMI would be affected by any increase or decrease in income. Refinance a home loan with a longer term to lower your EMI is a smart move if your monthly income has dropped for any reason. It may be a good idea to get a home loan earlier if you have better financial standing than when you took out a home loan.