Home loan interest rates are at their lowest level in the year 2021. But the old home loan and its high interest remain a big headache for the people. In such a situation, let us know the way through which you can easily get rid of the old loan and reduce your interest.
What is home loan refinancing and what are its benefits?
In home loan refinancing, the existing home loan is repaid by taking a new home loan with terms like lower interest rate. A new loan can be taken from the same bank or from a new bank. With the money received from the new loan, you can close the old loan and start repayment of the new loan. Since the interest rate will be lower in the new loan, then the EMI burden will be less and the loan will also end in a shorter period.
Get a better understanding of refinancing
Suppose you are running a loan of Rs 50 lakh for 20 years at an interest rate of 8% per annum. In such a situation, there will be a total interest of Rs 50.37 lakh on this loan. If this loan is refinanced, under which the interest rate is 7 percent, then the total interest to be paid will come down to Rs 43.03 lakh. That is, a saving of about Rs 7.34 lakh.
Which is the best time to refinance?
It is better to refinance an already running loan before the first half of its tenure passes. The loan should be refinanced only if the second loan is available at a lower rate of interest or when your credit score and income are better than before. Refinancing has a cost. Consider loan refinancing only when the estimated savings from refinancing are sitting more than the cost.
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