A Home Loan is the financially feasible option to buy a home. With a choice of lenders in the market, the choice of the lender tilts in favour of the one who offers competitive interest rate and levies reasonable charges.
Home loan interest rates are subject to fluctuations, governed by market forces. The downs in the interest cycle can prove to your advantage by choosing Home Loan Balance Transfer. By moving your home loan to a lower rate, you can enjoy substantial savings. There are two options; repricing and refinancing.
You can reduce the outflow of your Home Loan EMI, by transferring your loan balance to a new loan account. Under Home Loan Refinance, the entire housing loan outstanding balance is transferred to a new lender. However, when you opt for repricing, the lender remains the same, while the terms of the new loan agreement are modified.
Basically, the refinancing and repricing of a housing loan is done to reduce your loan liability. How much of the loan balance is transferred can be determined using Balance Transfer Calculator
Home Loan Refinancing
Home loans are generally long term. What you pay as EMI includes principal plus interest. In the initial years of the loan tenure, a larger part of the EMI is towards interest repayment. The home loan rates vary between various banks and financial institutions. If you want to move your loan to another bank which charges a lower interest, refinancing is your best bet.
When you opt to effect a home loan balance transfer through refinancing, you need to first intimate your existing lender. Refinance entails transfer fees as well as the processing fees charged by the new lender. Once the new lender settles the outstanding balance, your new refinanced loan account gets operational.
When there is few percentage points difference in the interest rates charged by different banks, you stand to gain quite a sum on a hefty home loan. For example, a 0.25% lower interest on a sum of 10 lakhs translates to Rs.2500.
Home Loan Repricing
Repricing a loan retains your home loan account with the same lender, but the terms of the loan agreement are altered so that you stand to benefit, in terms of lower interest. The objective of repricing the house loan is to lower the repayment. Either you can shift from a fixed rate loan to floating rate loan—when interest rates are falling or cut short your loan tenure.
When the loan tenure is reduced, your overall repayment is lowered, while the EMI remains the same.
The best part about repricing is that there are no transfer fees, paperwork and other legal charges as the lending bank is the same.
Refinance vs Repricing
A home loan balance transfer is to be effected after matching the cost and savings. If you’re towards the end of your loan, there is no point in going for a transfer as the costs you incur effecting the switch will be far more than the savings.
If you want a hassle free transfer, home loan repricing is right for you. Employ your negotiation skills to sign up the new loan agreement at attractive home loan interest rates.
On the other hand, if you’re in the initial years of the loan and you find a lender who gives you an interest rate that can substantially reduce the loan balance, refinancing is the best choice.