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If adversities come, can opportunities be far behind? Our childhood lessons tell us, they aren’t. The climate of economic slowdown that the country is passing through has also thrown up the possibility of reducing one’s home loan burden – easily the biggest debt burden of longest tenure for most families. Home loan rates are now at historic low levels in the country with about 20 banks and institutions offering rates that are significantly below 7%. This is an opportunity for many home loan borrowers to reduce their debt liability by going for home loan refinance which basically means taking a new loan, which is cheaper, to pay off the earlier loan. It might entail switching to a new bank/institution for the new loan.

However, there are some golden rules for refinancing. Experts advise that there should be at least half a percentage point or 50 basis points difference between the interest rate of new and old loans. Else the entire process of refinancing might not be worth the trouble.

Negotiate with existing lender

Before approaching a new bank/lender try to negotiate with your existing lender if it is ready to offer you lower rates. Refinancing entails a lot of paperwork and, therefore, a new institution would charge a hefty processing fee. If your existing lender agrees to migrate to a lower rate, the best option is not to switch.

Experts also advise that the borrower should ideally keep the EMI the same and pay off the loan faster. It allows increased savings eventually. Another point to keep in mind is that refinances work best in the first half of the loan tenure, which is the time when interest charges constitute a larger portion of the EMI. If the interest rate is lower, the savings are higher, goes the logic. So, if you are in the initial years of the tenure, it makes a compelling logic for refinancing.