How Does Home Refinancing Work?

Home Loan Transfer, also known as home loan refinancing, is the procedure of transferring your current home loan account to another bank or any non-banking financial company to avail better services along with a lower interest. If you are not satisfied with your high-cost home loan, do not lose hope, as now you have the option of moving your loan from your existing bank to a new bank to save on interest besides availing a higher amount of loan.

 

    • The procedure of home loan transfer is quite simple and hassle-free. Here is a simplified elucidation of how home loan transfer works-

 

    • You can initiate the process of transfer by writing a bank transfer request letter to your existing bank. On receiving your request, your existing bank will review your application and issue an NOC along with your payment history.

 

    • On receiving the above-mentioned documents, you need to submit them to your new lender. The documents are then thoroughly verified by your new bank to ensure your capability of repaying the loan.

 

    • Once the verification is done, the new bank prepares for the closure of your account by sanctioning your loan amount to your former lender. As soon as the transaction is completed, your property documents are handed over to your new lender.

 

    • Since your home loan will be treated as a fresh loan by your new lender, you have to undergo the procedures of technical verification and legal verification of your property documents once again, along with credit appraisals conducted by your new lender.

 

    • Once you move your loan account to the new bank, you are required to pay a home loan processing fee to your new lender.

 

    • This is how the process of refinancing works. However, you should keep certain factors in mind before transferring your home loan:

 

    • Before moving your housing loan, make sure you study all the terms and conditions carefully including the legal charges, processing fees, stamp duty, and other costs which you may have to pay to your new lender.
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    • Try switching your housing loan in the initial years of the loan. Transferring your loan after two-three years of loan repayment will not reduce your interest burden since you will be done repaying a major portion of the interest amount by that time.

 

    • If you have a fixed interest rate for your housing loan, transferring the loan will not be beneficial as it carries a pre-payment penalty, thus, making home refinancing a costly affair. Switching the loan can be advantageous only if your loan is on high floating interest rate.

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    • Last but not least, it is advisable to clarify all your queries and doubts before moving your loan to a new lender.

 

  • Before opting for a loan switch, compare the interest rates offered by different lenders so that you can go for the best rates. At the same time, before finalising the decision of transferring your home loan account to a new bank, try negotiating with your current lender to reduce your interest rate. Ideally, you should decide to transfer your loan only if it leads to significant long-term benefits.

 

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