Often, any changes in the political or economic condition of the country reflects in the interest rates of home loans. Therefore, when you avail a home loan, there are high chances that you are aware of the possible increase in interest rates during the tenure. Thankfully, you have the option to refinance your home loan to get lower interest rates and better terms.
However, the process could be complicated and you must be aware of all the factors before opting for the facility of home loan transfer. If you are planning to refinance your home loan, there are certain factors that you must consider. Find below a few factors that can help you analyze if it makes sense to opt for a home loan refinancing.
What is home loan refinancing?
Home loan refinance is a facility where you can refinance your home loan and save money. If you are not satisfied with your lender or are paying higher interest rates, you can transfer your home loan to another lender by foreclosing your previous loan. Your old loan is closed, and you can repay the remaining loan amount as per the new lender. You can opt for home loan refinancing to get lower interest rates, better terms and conditions, loan restructuring or additional facilities like a top-up loan.
Factors that you must consider before transferring your home loan
- Lender’s credibility
Before you switch your loan, do all the research about the new lender as you did when you availed the home loan for the first time. Ensure that the lender is credible by doing a background check.
- Cost of refinancing
Transferring your loan is not free. You need to pay the transfer cost along with all the fees associated with availing a new home loan. Moreover, your old lender can also charge you a prepayment fee for foreclosing the loan. Therefore, you must compare the cost of the transfer with the expected savings. You must do a cost-benefit analysis to see if you are saving enough funds with the transfer and if it’s worth it.
- Remaining tenure
You must know that the maximum amount of home loan interest is paid in the initial years of the tenure. Therefore, if you transfer the loan to save on interest costs at the beginning of the tenure, it is more beneficial. Switching your loan in the later years might not help you save much.
- Loan terms
Along with lower interest rates, the credibility of the lender and features offered, you must know about the terms and conditions of the loan. Ensure to read the fine print carefully to avoid nasty surprises in future.
Opting for home loan balance transfer at lower interest rates could look appealing. However, you must ensure that you are making the right decision by weighing the pros and cons of the transfer. You must also assess the benefits that you could get by the transfer and take enough time to think it through before you opt for it.
