Your Home Loan interest rate determines the affordability of your loan. At the time of taking the Home Loan, you may have got the most competitive rate. However, with time, you may come across Home Loans with even lower interest rates than the rate you are paying. Under these circumstances, it makes sense to refinance your Home Loan and benefit from the lower interest rate. It will help reduce the EMIs (Equated Monthly Instalments) you are paying. However, refinancing is the way forward only if the majority of your loan tenure is still pending. Otherwise, the closing and processing costs will not justify the refinancing.
When you refinance your Home Loan, you enjoy many benefits. The four main benefits are highlighted below:
- Reduced EMIs
One of the main reasons to transfer the existing Home Loan balance to another lender is to get a better interest rate. Once you find the right lender, you will find that your EMIs have become lower and as a result, you can make the monthly payments without feeling the pinch.
- Reduce the Loan Tenure
The longer your loan tenure, the lower will be the EMI. Likewise, the longer the tenure, the higher will be the interest. So, as a wise borrower, don’t spend the money you save after the refinancing. Instead, let it accumulate in the bank. Use this amount to make part repayment on your Home Loan to build equity in your home and to reduce the loan tenure. The prepayment will help you get debt-free earlier than anticipated.
- Avail Home Loan Top Up
When you opt to refinance, you may get an opportunity to top up your existing loan amount. You can use the additional money to make home improvements, for property registration, or conduct renovations or expansion. There is no hard and fast rule to use the top up, so you can use it for health care or fund your child’s higher education.
- Move from Floating Interest to Fixed Interest Rate or Vice Versa
If you have a floating interest rate on your loan, it may make sense to Apply for a Home Loan Balance Transfer and get a fixed rate Home Loan so that you know exactly how you would have to pay each month. It makes budgeting easier. On the other hand, if you have a fixed interest rate that is high, opting for a floating rate may help lower your monthly EMIs.
Before you decide to refinance your Home Loan, make sure you weigh the pros and cons. You should opt for refinancing only if you enjoy significant savings and you still have several more years to pay off the loan. Whether you decide to refinance or not, you will still enjoy Tax Benefits on Home Loan. The Section 24 of the Indian Income Tax Act clearly states that you can deduct the interest that you pay on the principal amount. If you are residing in the house, you are eligible for a maximum of Rs. 2,00,000 for deduction. However, in case you’ve rented the property, there is no limit to the deduction.
If you would like to know more about home loan refinancing, get in touch with the financial experts at My Money Mantra. They will recommend the best refinancing options based on your needs.
Also Read: Is it Possible to Add a Co-applicant for My Home Loan Who Isn’t a Co-owner in the property?
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