Refinancing a home loan means availing a new loan from another lender to pay off an existing one. Two primary reasons for switching a housing loan (also known as refinancing) are:(1) To get the benefit of a lower rate of interest and (2) To avail a top-up on the original loan amount. However, besides these two, there could also be many other reasons for taking a new loan to pay off an older one. These can be poor service quality of the existing lender and consolidation of loan portfolio, among others.
🔸Saving on interest cost:
This is the most common reason for shifting the home loan to a new lender. If an individual, for instance, is paying higher interest on an existing home loan than that offered by another lender, he would naturally be tempted to go for a new loan that brings down his total interest cost and consequently his EMI.
Let us take the example of an individual who had opted for a 20-year fixed rate home loan of Rs 50 lakh at 12.25% per annum two years ago and is now paying an EMI of around Rs 56,000.
"After paying the EMI for two years, his outstanding loan amount is Rs 48,67,866. For the rest of the tenure (18 years), he decides to shift to another bank which is offering floating rate home loan at 9.75% per annum. This way he reduces his EMI from Rs 56,000 to close to Rs 48,000 and his total interest cost comes down from Rs 84 lakh to Rs 67 lakh,
True, the individual may have to incur some charges for pre-closing his loan and getting his loan refinanced from another lender, but those charges are likely to be negligible compared to the savings he will be able to get during the remaining tenure of the loan.
🔹Crux:- It doesn't matter whether you have a loan with fixed rate of interest or floating rate of interest, Loan Refinancing is one of the best ways to Reduce your Loan interest Rate by Transferring in to another bank who is charging less rate kf Interest.
Source:- Economic Times
.
.
.
.
.
.
.
.
.
.
#loans #bankloan #financetips #moneymangement #personalfinance #loanrefinance #savemoney