When Should You Consider Changing Your Home Loan?

Only refinance if the potential savings in the long term appear to be considerable.

The Reserve Bank of India (RBI) has dropped the repo rate by 0.5 percent in recent quarters, which has been followed by rate decreases by banks and lenders. Borrowers have benefited from cheaper home loan rates as a result of this. Suresh  has a Rs. 3 crore home loan that he took out at an interest rate of 11.20 percent. His loan is for a period of 20 years. He wants to refinance his Home Loan for the remaining term at a rate of 10.50 percent to take advantage of the declining interest rate cycle after making payments for seven years. Will this be a good choice? Is a Balance Transfer the best option for him?

Many current borrowers might consider moving their Home Loan to a different lender to take advantage of the cheaper rates and EMIs. Refinancing may be quite helpful if done correctly. However, Suresh must do a comprehensive cost-benefit analysis before proceeding. It's critical to time the loan refinancing so that the amount of money saved on interest is maximised.

Suresh would benefit from transferring because he has just completed seven years of his loan term. As his EMI is largely made up of the interest component, this indicates a considerable chunk of his principle is still owed. The interest component will decrease with time, but the principal component will increase.

Instead of deciding to move based just on the interest rate disparity, Suresh must evaluate all expenditures (including pre-payment charges and the new loan's processing fee) as well as the inconveniences of repetitive paperwork that comes with Balance Transfer when calculating the possible savings. It goes without saying that refinancing is a good idea only when the long-term savings are substantial.

What You Should Know?

• Credit risk funds are a type of Debt Mutual Fund that invests at least 65 percent of its assets in securities with a credit grade of less than AA.

• These funds have the potential to earn substantial returns since they take on more credit risk by investing in lower-rated, higher-interest-paying paper.

• When a security's rating rises, it offers the benefit of capital gains. Downgrades, on the other hand, might result in a capital loss.

• These funds also have a higher liquidity risk and a higher risk of default due to the nature of the underlying investments.

• It's a good investment for someone with a medium to long time horizon and a high risk tolerance.

.