Home loan borrowers have always been concerned about their financial outflow while repaying debts. With interest rates easing out in the recent past, many borrowers are considering home refinance as an option to reduce this burden.

So what is home refinance and how can you capitalise from it?

Understanding refinancing
Refinancing in simple terms means replacing your existing loan, with a new one, under fresh terms and conditions. So when you talk of home loan refinance, you will be repaying your existing home loan before its final tenure, with a new loan possessing different terms.

A home refinance option could prove to be beneficial for many borrowers. However it is important to understand its procedure and the various costs that are associated with it before considering the option.

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Whether it's for personal requirements or changes in interest rates, here is why you should consider a home refinance.

• Reduced EMI payments: At times you may wish to reduce your monthly EMI to divert some cash flow for large expenses or for repayment of other debts. Refinancing your loan could be a solution to reduce your monthly outflow. Your refinance lender may increase your loan tenure to suit the reduced EMI.
• Easing interest rates: You could chose to modify your existing floating rate loan to a fixed rate loan at lower interest rates.
• Change in loan tenure: To suit your personal requirement and alter your loan tenure to either a short-term or long-term one.
  

As a borrower, you generally look out for a market time when interest rates are low before considering a fresh loan. The same applies for a refinance option too. The right time to consider this option would be when loan interest rates are low.  

When interest rates fall, a wise option would be to replace your existing home loan with a fresh refinanced loan at a low interest rate. What you need to keep in mind is whether the rates have fallen enough to cover the costs associated with your fresh refinanced loan.

Analyse your existing home loan
Before going in for a refinance option, it is important to analyse your existing home loan, the current interest rate scenario and the charges quoted by your refinance lender. This will give you an idea if it is actually worthwhile and profitable for you to transfer your loan to a new lender.

Understand your requirement
Your requirement for refinance may arise due to an interest rate change, a cash flow requirement or a change in the loan tenure. Identify the specific reason before you choose the option.

Choose the right refinance lender
A home refinance comes with various costs associated with it. When choosing your lender take into account the interest rate of your new loan, charges for prepayment quoted by your previous lender and the processing and administration cost charged by the refinance lender.

Provide the worth of your property and your income and expense details to lender
You will need to provide the refinance lender with an estimate of your property. This estimate should take into consideration any increase in property prices. Lenders generally make disbursements on the basis of the actual worth of your home, so a realistic estimate is mandatory.

Your lender would also review your income on the basis of your salary and debt payments such credit cards, auto loans etc. Disbursements are made keeping in mind your debt to income ratio.

Closure of existing loan and new loan processing
Your earlier loan will be closed and your new lender will process your loan after adequate documentation is collected from you.

• It pays to understand the current market scenario before opting for a refinance option. A thorough calculation of your existing loan, the interest rate and charges would give you a picture of what you would actually be saving through refinancing.
• Various lenders have refinance offers. Review their options before choosing the one that fits your bill.
• Lenders quote various charges such as mortgage charges, stamp duty charges, documentation fees, and administrative charges. Work out the charges with your lender as sometimes charges could overshadow the interest rate benefit that you may receive.