How Refinancing Works on Home Loan

Frustrated with your current housing finance terms? Are the EMIs burning through your wallet? Refinance the loan to make these problems go away. But first, let’s understand what refinancing is all about.

What is loan refinancing?

Simply put, a home loan refinancing, also known as a balance transfer, is a process where you transfer your existing loan to another lender offering comparatively lower rates and other favourable terms. However, if you’re unaware of how this process works, don’t worry!

Here are some pointers to help you understand how to refinance your loan seamlessly.

Check the eligibility criteria 

You must first check if you meet the home loan eligibility criteria set by your new lender. Usually, lenders require you to fulfil the following conditions:

• You must be occupying or ready to occupy the property
• You must have paid the minimum number of loan EMIs

Approach your current lender

Before you can apply for a loan balance transfer, you need to ask your current lender for the following documents:

• Your loan repayment history
• A foreclosure letter and a no-objection letter.
• A complete list of your loan-related paperwork under the current bank’s custody.

Supporting documents for eligibility check 

Once you’ve reviewed home loan rates, tenure, etc. and other terms by your new lender, you can apply for a balance transfer. Along with the application form, you will need to furnish some additional eligibility documents for verification. These include:

• Proof of income
• Your loan-related documents with the previous lender. Your new lender will review these to check your credit history for sanctioning the funds.
• Proof of age, address, and a photograph for KYC

Once the lender reviews these and approves them, you’ll be able to refinance your loan.

Charges to keep in mind 

So, you’ve used the lender’s home loan EMI calculator to evaluate your monthly instalments and set aside a budget. However, there’s more to consider than the loan amount.

The refinancing procedure also includes additional charges like a processing fee. You must consider this fee when transferring your loan. If the lender is charging a higher processing fee, more than the money you’re saving on EMIs through the refinance, it’s not a preferable option.

It’s best to inquire about the processing fee, compare it with the amount you are saving on the EMIs, and then decide on the lender.

Final steps 

After your documents are verified, your new lender will issue a check with the outstanding loan amount addressed to the old lender. After successful payment, your current lender will hand over all the original paperwork to the new one, and your refinancing will be complete.

Parting thoughts 

As you can see, refinancing your loan isn’t challenging. All you need to do is fulfil the new lender’s eligibility requirements, provide the necessary paperwork, and pay the outstanding cash. A pro tip – choose your lender carefully.

Shop around, compare home loan interest rates, prepayment penalties, processing fees, tenures, and so on. Some even provide additional top-up loans to help you repay more conveniently. So, select the best lending institution, and your home loan EMIs won’t be a bother anymore!