How to refinance your property

Is it advisable to go for refinancing your property? Will it reduce your debt burden considerably? These are the questions that come in to one’s mind when one decides to go for refinancing an existing home loan. First, one should know what is refinance is all about.

Refinance is the method in which a person, who is having a housing loan, in an effort to reduce his burden, makes some adjustment in agreement, interest rates, amount of loan, etc. He can also burrow fresh money from the same loan account to meet the present day’s obligations.

People generally go for refinancing the existing loan when the prevailing interest rate is much lower compared to the higher rate, which was existed when they took up the loan. The borrower, thereby, want to reduce the EMI burden and banks too allow such switchover options with or without moderate fees. People go for loan against loan when interest rate of some other bank is much lower or when the latter introduces attractive switchover options.

People go for refinance to switch interest types during a favourable interest regime. This is a very good reason to go for refinancing. If the borrowers had opted for fixed rate loan at the time of disbursal of loan and they can encash the declining interest rates after few years by going for floating rate.  They can also adjust the loan period.

Looking at the fact that home loan occupies the major portion of the monthly expense of most of the Indian households, the decision to refinance needs threadbare understanding of one’s financial status and future plans. There are a lot of advantages and disadvantages refinance would bring in, hence a careful consideration of experts’ opinion is necessary before plunging into further financial commitments.

There can be many reasons for those who opt for refinancing. A mortgage is made generally for long term
and during the time span lot can happen. People can make the most of the presently owned assets by going for refinancing. Through refinance, they can borrow more money on additional assets.

To be precise, one may have several loans during the years and one can pay off with a new loan. The catch is the new loan may be acquired with much reduced interest rate compared to the previous ones. So, it is advantage to go for refinancing at floating rate when the interest rate is at rock bottom.

Advantages of refinance

• If carefully planned, the refinance will help to reduce the EMI by changing the rate of interest
• Maturity term of the loan can be changed
• It improves the overall cash flow
• The risk on existing loan will be reduced
• With the help of refinance one can pay off new liabilities on high-interest debt like credit card debt and monthly recurring bills.

Refinance is of two types - No-closing cost and Cash-out. In no-closing cost refinance, an upfront fee should be deposited to get new mortgage loan. This refinance type is suitable when the current market rate is less than the existing interest rate by at least 1.5 % points.

Cash-out is used for improvement purposes as well as debt consolidation and credit card payments. Larger amount can be borrowed from the additional sureties than the existing mortgage. One can use the cash difference, if any, in any way as desired. He can even invest in some stocks or jewellery.