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How much difference does a higher or lower interest rate make?
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When you take a home loan to buy your dream home, banks offer home loans at the prevailing rate of interest which is linked to Base rate/ MCLR /PLR or Repo Rate.
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Banks offer new home loan rates to attract new customers or existing customers of other banks. As a home loan customer, you need to keep a tight vigil on home loan interest rates. Whenever you see that another bank is offering better rates that can help you reduce your EMI or save interest, you should shift your home loan to that bank and this is the best practice to save and reduce the home loan interest apart from part payment of housing loan.
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Do you know how much can you save if interest rates get reduced by 0.50%?
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Example : Existing Bank Bank A Bank B
Loan Amount 50,00,000/- 50,00,000/- 50,00,000/-
Rate of Interest 8.25% 7.75% 6.85%
Term 240 months 240 months 240 months
EMI 42,603.30 41047.40 38316.00
Saving —— 3,73,416 /- 10,28,952/-
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Even a slight change in interest rates can make thousands of Rupees of difference over the entire term of a home loan.
What are the benefits of Home Loan refinancing ?
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While refinancing is usually a very simple process, it is admittedly going to take a bit of work on your part. So before you decide to jump in with both feet, it’s good to weigh up the benefits you’re likely to see.
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What are the benefits of refinancing? Well, that depends on your situation. But the benefits can be pretty significant.
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You can save some serious money.
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You can repay your loan faster
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You can avail additional money as top up
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You can consolidate other loans
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You can change to new product
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When shouldn’t you refinance?
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When you are on fixed rate of interest
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If there is a loan closure fee and early termination fees
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High interest rate of new loan
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If New home loan doesn’t have the features you need
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Six common refinancing mistakes to avoid
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Mistake #1: Not comparing lowest rate
If you are considering for refinancing, you’ve likely been attracted by a low advertised rate, but before applying for any such rates, you must explore the current offerings of all the banks. You might get a better deal than the advertised rates.
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Mistake #2: Waiting too long to refinance
When rates are dropping and you’ve worked out that you can reduce you rate of interest by refinancing, time can be of the essence. Delaying on refinancing your home loan could see you miss out on some great offers. In a market where rates are dropping, it’s certainly tempting to wait and see if they fall a bit further before you make a move. But waiting for the bottom of the market is a risky proposition.
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Mistake #3: Adding years to your home loan
When you refinance your home loan, it’s likely you’ll have the option to increade your term to original home loan term. Be very wary of doing this. If you’ve been paying your home loan emi for a few years, refinancing to a increase term means you’ll increase the loan term, and you’ll end up paying more in interest.
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Mistake #4: Refinancing when your home has fallen in value
Most of the time when you refinance, you’ll find that your home has risen in value. This means you will have built up equity, and your loan-to-value ratio (LVR) will be lower than when you took out your initial home loan. This is a good position to be in.
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Mistake #5: Being wooed by “honeymoon” rates
many NBFCs often offer rock-bottom rates as a temporary incentive to attract home loan borrowers. They may reduce 15 or 20 basis points off their standard floating rate for a one or two-year period, after which the loan will increase to their standard variable rate.
