Why Should You Refinance Your Home Loan in India?

refinance home loan


6 mins read

Last updated on 29th May 2024

While securing a home loan is the initial step towards homeownership, it is vital to acknowledge that financial circumstances are fluid, and market dynamics continually evolve. Consequently, the terms and interest rates of your original home loan may no longer align with your best interests. 

This is where the concept of “home loan refinancing” steps in.  A financial strategy designed to offer homeowners in India the opportunity to enhance their homeownership experience with potentially more favorable refinance home loan rates. As a homeowner in India, you've probably heard about refinancing home loans many times. But what exactly is it, and why should you consider it? 

Table of Contents

Our goal here is to explore the benefits and reasons why you should seriously consider refinancing your home loan.

What is Home Loan Refinancing?

Home loan refinancing offers a way to replace your existing home loan with a new one, offering lower improved terms. One of the primary reasons to consider refinance home loan in India is the potential for lower refinance home loan interest rates. Interest rates can fluctuate over time due to changes in the economy and monetary policy. 

If you secured your home loan when interest rates were higher, refinancing allows you to take advantage of lower rates available in the market. By doing so, you can significantly reduce your monthly mortgage payments, which translates to substantial savings over the life of your loan.

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How Often Can You Refinance Your Home Loan? 

When it comes to refinance home loans, there are no strict rules or legal limits on the number of times you can refinance your home loan. However, there are considerations regarding frequency and timing. Banks and housing finance companies in India typically impose a waiting period of seven months before you can refinance again. This waiting period ensures that you've made at least six monthly payments before considering a new refinance.

While refinancing is an option, it's not always the best choice. Multiple refinances can be costly and have significant financial consequences if not carefully planned. Therefore, it's crucial to take a holistic view of your financial situation before proceeding.

What is the Cost to Refinance Home?

Refinancing is not free. You can expect to pay a processing fee, typically ranging from 0.5% to 1% of the principal amount. It's important to weigh these costs against potential savings. In many cases, the charges associated with a refinance mortgage are merely a fraction of the total savings you can achieve through this process. Therefore, there's no need to panic when you encounter these charges. Instead, focus on exploring effective ways to manage them and ensure they align with your financial goals.

When considering refinancing, you should have a compelling reason. Whether it's your first or third time, there are both valid and invalid motivations to pursue it.

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Here are Some Valid Reasons for Refinancing

1. Favorable Interest Rates

One of the primary reasons to consider home refinance in India is the potential for lower interest rates. All bank home loan interest rates can fluctuate over time due to changes in the economy and monetary policy. If your current interest rate is higher than the prevailing market rate, refinancing can save you money. 

For instance, if you have a 30-year home loan of Rs 1 crore at 8.7% interest, you'd pay approximately Rs 1.81 lakhs in interest over the loan's life. If the interest rate drops to 8.3%, you could save around Rs 10 lakhs over 30 years. Even a slight drop in interest rates can lead to significant savings.

2. Adjusting Monthly Payments

Reducing monthly mortgage payments is often a significant motivation for homeowners to refinance their home loans. This can free up your monthly budget, allowing you to allocate those funds to other pressing financial goals or simply enjoy some financial breathing space.

Monthly payments are influenced by factors like income, debts, and financial circumstances. Over time, you may experience changes such as promotions or debt reduction. If you're comfortable with higher monthly payments, you can refinance from a long-term, 30-year loan to a shorter, 15-year one, aligning with your budget. Conversely, those seeking more cash flow can reduce monthly payments, though this might result in higher long-term interest costs.

3. Switching Loan Type

Refinancing offers the opportunity to switch between floating-rate and fixed-rate home loans, and you can even explore the option to refinance home loans online for added convenience. If you're in a floating-rate loan and believe current rates are favorable, you can refinance to a fixed rate for predictability. On the other hand, if you're locked into a high fixed-rate loan and need flexibility, you can convert to a floating-rate loan. This provides relief from high interest costs.

FAQs about Home Loan Refinancing

Yes, refinancing a home loan can be highly beneficial. It offers the opportunity to secure lower interest rates, adjust loan terms, consolidate debts, access home equity, and enhance your overall financial situation.

A refinance home loan involves replacing your existing home loan with a new one, either from a different lender or with modified terms from your current lender. This is typically done to improve the terms, lower interest rates, or adjust loan tenure.

Yes, refinancing home loans is allowed in India, and it's a common financial strategy for homeowners to optimize their loan terms and save money.

You can refinance your house when you believe it makes financial sense, typically when you can secure lower interest rates, better loan terms, or achieve other financial goals through the process.

There is no strict limit on how many times you can refinance a mortgage loan, but it's essential to consider the associated costs and benefits for each refinancing.

“Remortgage" is a term commonly used that refers to switching your mortgage to a new lender, often for better terms. "Refinance" is a more universal term that can apply to various types of loans and typically involves replacing your existing loan with a new one.

Many banks and financial institutions in India offer home loan refinance options. The availability of refinancing options may vary, so it's advisable to check with your current lender or explore options from other banks.

Alternatives to home loan refinancing include making extra payments toward your existing loan, or negotiating with your current lender for better terms. Each alternative has its advantages and disadvantages, so it's essential to assess your specific financial situation before deciding.

Published on 19th September 2023