June 29, 2022

Is Refinancing a Home Loan Good for People During Covid-19 Crisis?

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The impact of Covid-19 has been devastating. The disruption has been seen in all walks of life. Because of the imposition of lockdowns, economic activities came to a standstill. Almost all sectors of the economies faced pressure. The outcome of this could easily be observed by looking at the number of job losses during the period. The effect of Covid-19 outbreak on the financial health and planning of people forced the government to take steps to give some relief to the borrowers. And cutting down on the interest rates happened to support the economy and people. Consequently, home loans have become cheaper in comparison to the pre-Covid days. To take advantage of the interest rate cuts and to make your home loan cheaper, you can consider the option of home loan balance transfer, which can prove to be a prudent decision considering the current scenario. 

What is Home Loan Balance Transfer?

Home loan balance transfer or home loan refinancing is an option for the borrowers to switch their home loan lender. If you opt for refinancing, your current loan lender will be paid off the due amount by the new lender. Considering that your old loan has been paid off with a new loan, you now must pay the EMI (equated monthly instalment) to the new lender. You can choose this financial route to cut down on the higher interest rate you are paying on your home loan during the process of repayment.

Why Should You Consider Refinancing?

As a home loan borrower, you do not have to stick to your current lender if a better option is available. It is only natural to decide against paying a higher interest rate if a lower interest rate is available. Because of Covid-19 crisis, interest rate on home loan in India has fallen significantly. In this case. home loan balance transfer would provide you with the opportunity to repay your outstanding home loan amount on a lower interest rate. Additionally, refinancing the loan is also a good option if you want to lower the tenor or increase the tenor of the home loan. Based on your financial condition, you can determine this for yourself. 

How Easy Is the Refinancing Process?

The home loan refinancing process can be completed without much hassle. Before taking a final call on the home loan balance transfer though, a thorough analysis is recommended. You can use the easily available home loan calculator to make your task easier. This helps you in estimating the approximate amount of money that can be saved. After this analysis, new lenders can be approached to offer a favourable home loan refinancing option. Generally, the documentation process is taken care of by the new lender. To make this process easier, the lender can be asked to assure you or give you a timeframe within the entire process of switching the lender will be completed. 

The Cost of Home Loan Refinancing

Home loan refinancing come with certain costs. Your current loan provide might provide charge a pre-closure fee. This charge can differ from lender to lender. The number of EMIs already paid may also impact the pre-closure charges involved with the loan. Additionally, your new lender may also charge a processing fee and some other applicable fees. If you are hunting to choose the right lender, get your loan refinanced with the condition that the fees and charges can be adjusted with the loan amount. This can save you from paying any upfront charges. The upfront cost of home loan refinancing should not be of much consideration if the home loan is getting cheaper.

Normally, home loan refinancing can be carried out at any stage. However, in the initial years, your existing lender can charge you a higher amount to close your loan. At a later stage of the loan repayment, refinancing may not be extra rewarding considering that the chunk of the principal loan amount has already been paid. Also, if you are concerned about the effect of refinancing on home loan tax benefit, there are not any. You continue to avail the same tax benefits despite choosing the option of home loan refinancing and switching the lender. 

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The beginning of the desire to go through loan refinancing is the realisation for the borrowers that they are paying a higher interest rate on their home loan. Considering the Covid-19 crisis and its impact on people’s finances, refinancing the home loan can improve their financial situation, both because of the availability of the cheaper interest rate and because of the possibility of increasing the tenor of the loan to bring the EMI amount down. Particularly, if these are the early years of your home loan and a large portion of the principal loan amount has not already been paid, home loan balance transfer can be very much worthwhile. And by going for this, a significant amount of money can be saved.

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