Refinance – a smart tool to reduce home loan interest rate.

With the advent of internet it is very easy to shop around for best home loan interest rates. Customers can easily compare loan rates online on portals like bankbazaar to find which banks offer the most attractive interest rates.
Banks generally offer lower rate of interest to new buyers, while seldom reduce interest rates on existing loans. Hence customers have to keep themselves abreast of industry trends and latest developments. Rather than being stuck with the existing loan with higher interest rates for its entire tenure, customer can explore the option of home loan refinance.

Refinance or balance transfer is transferring your outstanding loan balances to a new bank. Obviously, the new loan should be available at better terms than the existing one, probably has lower rate of interest but might have its own terms and conditions.

These days every bank provides the facility to transfer the balance for loans – be it credit card, home loan or any other loan.

If the customer has a good credit rating/history, CBIL score and has a very good financial background loan refinancing is easy. However, before opting for the balance transfer, the customer has to carefully evaluate all the parameters, various processing fees, charges, hidden charges etc or else the customer may end up paying more than he or she is supposed to pay to his existing bank.

If possible, before thinking of switching to another bank, customer should write a letter to bank requesting for lowering interest rate, explaining the current market scenario and how he/she has better offers available in market for home loan refinancing. In case your bank is customer friendly it will definitely consider your case rather than losing you as their customer. In case bank does not allow, you can go loan shopping.

When to consider home loan balance transfer?

Customers can consider refinance in below situations:

1. When you get an attractive lower interest rate ?

You can reduce your payment by refinancing when interest rates drop sufficiently below your existing home loan rate.

You surely wouldn’t want to pay a higher interest rate if you have the option of switching moving to a lower rate.

2. When you want to move from fixed rate to floating rate interest ?

It may happen you opted for fixed rate interest rate but now interest rates have dropped considerably. In such case, you should definitely consider switching from floating rate loan to save on interest cost. In case your bank does not allow to switch to floating rate option, you can refinance the loan by switching over to another bank.

3. When your income has increased and you want to reduce loan period ?

At the beginning of loan you might have chosen long tenure; however, now if your financial position has changed, you may want to reduce the tenure of the loan.

4. You want to reduce monthly payments

You may want to lower your monthly payments and hence look for lower rate and/or longer tenure. In case of longer tenure it may eventually raise your overall interest costs.

To sum up, refinance is an effective tool available to customers to help reduce interest burden while repaying home loan.

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