Jun 15, 2023Home Ally

When And How Should One Consider Mortgage Refinancing In India

by Godrej Properties Limited



Refinancing Mortgage In India

In India, mortgage refinancing is replacing an existing mortgage with a new one to obtain improved terms, conditions, or lower interest rates. It allows borrowers to take advantage of favourable market conditions or changes in their financial circumstances. By refinancing, borrowers can potentially reduce their monthly payments, shorten the loan term, access additional funds, or switch from a fixed-rate to a floating-rate mortgage, or vice versa.

Factors To Consider And Steps To Follow When Contemplating Mortgage Refinancing in India

1. Interest Rate Comparison

To determine if refinancing is worthwhile, monitor market interest rates and compare them to your current mortgage rate. If there is a significant difference, typically around 1-2% lower, it may be beneficial to consider refinancing. Lower rates can result in reduced monthly payments and overall savings over the life of the loan.

2. Financial Goals

Determine your financial goals for refinancing. Common objectives include reducing monthly payments, shortening the loan tenure, switching from a floating rate to a fixed rate (or vice versa), or utilising the equity in your property for other purposes.

3. Calculate Costs And Savings

Evaluate the costs of refinancing, such as processing fees, legal charges, and any prepayment penalties on your current mortgage. Balance these costs against potential savings from lower interest rates or other benefits to ensure that refinancing makes financial sense.

4. The Creditworthiness

Assess your creditworthiness and credit score. Lenders typically consider credit scores when approving refinancing applications. A good credit score enhances your chances of obtaining a favourable interest rate on a new mortgage.

5. Loan-To-Value Ratio (LTV)

Determine the loan-to-value ratio, which represents the loan amount relative to the property value. Lenders generally have specific LTV requirements for refinancing. If the outstanding loan amount is higher than the permitted LTV ratio, refinancing might be challenging.

6. Research Lenders

Research various lenders to find the most suitable one for your refinancing needs. Consider factors such as interest rates, loan tenure options, customer service, and reputation in the market. You may also seek recommendations from friends, family, or financial advisors.

Wrapping Up 

Before proceeding with mortgage refinancing, it’s crucial to evaluate your financial situation and goals carefully. Consider the costs and benefits involved, and analyse the long-term implications. Refinancing should only be pursued if it aligns with your overall financial strategy. Take the time to make an informed decision that supports your financial well-being.

Frequently asked questions 

1. Why would someone consider refinancing their mortgage in India?

Ans. There are several reasons why someone might consider refinancing their mortgage in India. It could be to take advantage of lower interest rates, reduce monthly payments, change the loan tenure, consolidate debts, or access equity for other financial needs.

2. Should I consult a professional before refinancing my mortgage?

Ans. It’s advisable to consult with financial advisors or mortgage professionals before refinancing your mortgage. They can provide personalized advice based on your specific circumstances, guide you through the refinancing process, and help you make informed decisions.

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