Home loans are normally taken for a long period, more or less 20-25 years. During this term market conditions can fluctuate which might change the rates of interest and several other elements. Due to such kinds of fluctuations, borrowers may wish to reshuffle their current loan to keep in line with the market. This is where the notion of refinancing of home loan comes. In this post about home loan in NCR I shall talk about this concept.
In layman terms, home loan refinancing means to change the terms and conditions of the current loan. You can basically get new loan term, amended interest rate or move from a floating interest rate to a fixed rate and vice-versa. You have the option to either approach your current bank to alter/modify the terms and conditions of your loan or consult another bank for getting your home loan refinanced.
Now and then you may have surplus funds and may desire to clear the home loan swiftly, therefore lessening the term. At the same time you may wish to lengthen the loan tenure if you want to pay lesser EMIs each month. For this the loan has to be revised and reorganized and certain costs are charged by the banks for doing so.
Let us have a close look at the two costs which a borrower must be aware of during refinancing of home loan:
Exit Fee- Indian banks charge a pre-payment penalty of almost 2%-5% of the due principle amount if the borrower selects to refinance the existing home loan from another bank. The borrower is charged this fee by the banks for the loss of interest it had previously accounted for.
Processing Fee- Once you have made the decision to refinance home loan with a new bank and pay off the current one off, the new bank will levy upon you a processing fee which is almost 0.5%-1% of the principal amount.
Refinancing of home loan with the same bank
When you decide to get home loan refinancing, you can either select between the current bank and a new one. The current bank will have to relinquish a few of its earnings and will attempt to hand over as less as possible. Therefore the existing banks might be unwilling to alter the terms and conditions of the loan which will persuade you to go to a new bank for refinancing.
Refinancing of loan with a new bank
If you select to refinance your home loan with some other bank, then you are required to get the approval of your current bank and hand over a No Objection Certificate to the new bank. When you go to another bank you are required to go through all the measures once again just like you did when originally applying for the loan.
You have to take consideration of all the costs prior to applying to get refinance for your current loan. Consider all the options and see if you will be able to save more in the future and then make the final decision.