There are times when the equated monthly instalments (EMIs) that you are paying towards a loan may start being a little burdensome. It is at such instances that rather than being overwhelmed by the situation, you ought to look out for smart ways such as refinancing, which can help you reduce this strain with incredible ease!
So, what exactly is refinancing? Well, refinancing or balance transfer is essentially a simple way to replace your existing credit with a new loan. You can opt for this credit tool when you wish to –
- Reduce your EMIs
- Reduce the Rate of Interest
- Change the Loan Type from Floating Rate to Fixed Rate or vice versa
Process of Refinancing
No matter the goal you wish to achieve with refinancing, you will find that the applying for it is more or less like getting a new loan. Right from researching the various options to submitting the requisite documents along with your loan application, you need to follow a series of steps. Take a quick look at each of the steps mentioned below to learn the art of refinancing!
- Understand Your Goal
You should either be looking for a shortened repayment period, or a lower rate of interest. Determine which objective is more crucial to your financial health and tread accordingly.
- Check Your Credit Score
Before moving ahead, order a copy of your credit score. If you find any discrepancies in your history get it rectified. Once you have the right scores in your hand, check where you stand. If you have a high score of 700 and above you can expect to get a better refinance interest rate.
- Evaluate the Value of Your Home
On the basis of the real estate value in your area, draw an estimate of the value of your home. You can also do so, by using an online home value calculator, or by consulting a realtor.
- Look for the Best Interest Rate
It shouldn’t come as a surprise that the lesser your interest rate, the better off you will be. Hence, leave no stone unturned to find a loan with a lower interest rate. However, make sure you do the hunting within a span of 15 days, in order to keep the impact on your credit score to the minimum possible.
- Understand the Costs
As in the case of other credits, a Home Loan Balance Transfer will need you to cough up a significant amount of money towards application fee, document processing fee, underwriting fee, tax transfer fee, and so on. Hence, make sure to take a close look at these additional charges before blindly opting for a loan that looks seemingly reasonable.
- Assimilate your Documents
Get a checklist of documents from the bank or lender that you are opting. Once you have the list make sure to collect, print and file all the required documents at the earliest possible.
- Lock Your Rate
Once you are satisfied with all the terms and conditions of your loan refinance, simply lock your rate with the lender. This will help you buy some time to do all the formalities, without having to worry about the changes in the rate.
- Have Some Additional Funds
As mentioned earlier, refinancing is often accompanied by some additional charges. Make sure you have some cash in hand to meet the related expenses. If you don’t want to pay these charges upfront, you can ask your lender to include the same in your home loan balance.
Advantages of a Home Refinance
While the process may seem to be a bit lengthy to look at, this should not deter you from reaping the many benefits of refinancing your mortgage. Some of the leading advantages of the same are-
- When you Apply for Home Loan Balance Transfer, you stand the chance of reducing your EMI to a considerable extent. This will help you enjoy increased saving, which you can use to accomplish other financial obligations.
- If your property enjoys a significant appreciation, when you opt for refinancing, you will be from the hassle of paying a Private Mortgage Insurance or PMI, thus enjoying a lower EMI.
- If you are willing to pay off your loan sooner than you earlier anticipated, refinancing will prove to be just the ideal option for you.
- Refinancing your loan is a great way to switch from an adjustable rate loan to a fixed rate loan. This is especially helpful, when you wish to enjoy the perks of a steady EMI with no unwanted surprises.
Now that you know all about the art of refinancing, wait no more before you make the most of it and enjoy a life that is free of any financial burden. After all, your home should be nothing less than a paradise where you can live freely and breathe easy!
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