Hurdles you need to overcome when refinancing your home loan

Posted by Vanshika Kumari
December 14, 2017

NOTE: This post has been self-published by the author. Anyone can write on Youth Ki Awaaz.

Refinancing a home loan is a procedure wherein mortgage is taken over from one bank to another. Borrowers usually refinance a loan to obtain a lesser interest rate on the loan. In the event that a bank is unwilling to decrease the rate of interest on a loan, borrowers can choose to refinance the loan with another bank.

Methods to Refinance a Home Loan

In general, the following steps is followed in Home Loan Transfer Process

  • Obtain the documents from your current lender necessary for the refinancing process
  • After receiving the documents, provide the same to the lender you wish to transfer the loan to
  • Subsequently, the home loan will be transferred from the old lender to the new lender
  • The old loan account will then be closed and all future payments will have to be made towards the new lender
  • The old lender will then pass on the property documents to the new lender, formally completing the refinancing process
home loan balance transfer
Home Loan Transfer

Reasons to Refinance your Home Loan

  • Transferring the balance of your home loan can help you lower your EMI, depending on the bank
  • The interest rate on the loan can also reduce in many cases
  • It can help increase your credit score as well
  • If you opt for a shorter tenure, the loan will get paid off much earlier
  • When looking out for a new bank, often times you can choose one that provides better service
  • The documentation needed to refinance a home loan is minimal and hassle-free. It is also a quick and easy process to refinance your home  loan

Why Must you Refinance your Home Loan?

Why?

  • If you are paying a substantially higher rate of interest to a bank that usually provides a lower interest rate, you should think about refinancing your home loan
  • In the even that your bank refuses to reduce the rate of interest on a loan after a certain time frame, you should look out for banks that will offer a lower interest rate
  • If other banks are offering lower rates of interest, it is quite natural to want to transfer the balance to that particular bank

When Must you Refinance your Home Loan?

When?

  • A home loan can be refinanced after twelve to eighteen months of availing the loan. However, ensure that the EMIs have been faithfully paid off  before you opt to transfer the balance on your housing loan.

 

Hurdles to Overcome Before Refinancing your Home Loan

Although the procedure of refinancing you home loan is effortless, one must be aware about the hurdles that come with it. Impulsively transferring your home loan may cause an individual more damage than benefits. The following points must be adhered to before refinancing your home loan.

  • Credibility – Before opting to refinance your home loan, it is important to do a background check of the company you wish to transfer the loan to. Make sure the company is a credible one.
  • Foreclosure letter – Always make sure to obtain a foreclosure letter from the existing bank before you opt to refinance your loan. A foreclosure letter acts as proof stating that you wish to close the loan with the current bank. Apart from this acting as proof, this also provides the opportunity for you existing lender to reduce the rate of interest on the loan, freeing you from the burden or refinancing the loan.
  • Consider all costs – Refinancing your home loan can attract charges and fees. It is important to go through all the hidden costs and charges before you refinance your home loan. If the costs like stamp paper, documentation charges, processing fee, etc. outweigh the savings you receive, it becomes illogical to refinance your loan.
  • Quality of service – Occasionally, it can be noted that the marginal savings that a bank can offer via refinancing your home loan is irrelevant simply because your current bank provides you with an impeccable customer service. Don not fall into the trap of bad customer service. Always do your research on customer service before opting to refinance your home loan.
  • Go through the fine print – It is essential to go through the fine print of the document before choosing to refinance your home loan. Although you may benefit from saving money with a lowered rate of interest, it should not be the case wherein you are bombarded with hurdles that compromise on customer service, payment method, etc. Reading the fine print will eliminate this risk and also keep you informed of the policies of the new bank.
  • Make sure all payments are made – If all the payments towards the old loan hasn’t been paid, quite naturally, the loan will not be closed. Sometimes, even if you have made all payments towards the loan, it may take time for the bank to process it. Make sure the bank has processed the amount before refinancing your home loan.
  • Get all the necessary approvals from the co-borrowers – Make sure all the co-borrowers have signed the agreement to close the loan before refinancing it. If the co-borrowers hasn’t given his/her approval, the loan will not be closed.
  • Inform the current lender of closure – It usually takes a few days or even weeks to refinance your home loan. It will take even more time for your current lender to close the existing home loan. Therefore, it is important to keep your current lender informed regarding the closure. This will help you save time and also prevent you from paying any additional amount towards the loan.
  • Discuss the disbursement date with the new lender – Make sure you are available when the refinance process is happening. In case you are not present, your current bank will not accept the payment from the new lender. In this case, you will end up paying the interest twice.
  • Make sure you obtain the no-due letter – A no-due letter is a letter provided by your current lender stating that all payments towards the loan have been paid off. It is possible to face some hurdles in future in case you haven’t receive this letter.

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