Legally speaking, home loan eligibility puts no restriction on the number of times you can refinance your home. However, if you keep doing it for some reason or the other, you need to realize that it doesn’t put you off your debt. Even if you have low home loan interest rates, and can smoothly pay your installments every month, no one likes a debt on their shoulders. At some point, we all want to be free, isn’t it?
Refinancing a loan can surely help you save money either in the short run or in the long run. Here’s how you should decide on how many times you can refinance your home loan:
Change in Home Loan Interest Rates
Suppose you took a loan of ₹50,00,000 for 20 years at the rate of 7%. This means the total interest for 20 years will amount to ₹43,03,587. However, say after 5 years, you are getting a home loan interest rate of 6.7%, then here’s how refinancing will help:
Your closing balance after 5 years is ₹43,12,831. Thus, you take a new loan for the same amount to pay it off at the rate of 6.7%. Now, your total interest payable for 20 years amounts to ₹35,26,801.
With only a difference of 0.3% in the home loan interest rate, you can actually save on a good amount of interest payable in the long run. In such situations, when you benefit in the long run by a good amount, you may consider refinancing your loan.
Reduction in Tenure
Let’s take the same figures in the above example. The only difference this time will be that the new home loan is for a tenure of 10 years instead of 20. So, if you’re refinancing your home loan after 5 years, you’re saving yourself 5 years.
Not only are you getting free 5 years early, but your total interest payable also reduces as the EMI amount increases. If you use the home loan EMI calculator, here’s what you’ll observe:
With a closing balance of ₹43,12,831 after 5 years, your total interest payable for the next 15 years is ₹26,64,859. However, if you are refinancing your loan with a tenure of 10 years, your total interest payable for the loan comes down to ₹16,96,244.
So, if you can afford to pay more EMI, which is possible if your income increases, you can definitely consider refinancing your loan.
Increase in Tenure
Let’s simply reverse the above situation. You might be facing some financial troubles and what you really need right now is for your EMI to be less. It might mean that you would have to pay more interest in the long run. However, your short-term expenses can be made with more ease this way, so you might choose to go for it.
Unless and until your situation demands, it’s better not to refinance your loan if your overall payable interest is increasing.
Verdict
Refinancing for a lower home loan interest rate or reducing the tenure of payment can save on a lot of money in the long run. However, if you are increasing the tenure of your loan by refinancing, you may not save money over 10 years, but your EMI reduces, which you can also compare using a home loan EMI calculator.
You can even get a combination of the above situations. It means that both tenure and interest rate could be decreasing, or you could get a reduction in the home loan interest rate and an increase in tenure.
Nevertheless, we cannot put a number on how often you should refinance. But what you should do is, based on your home loan eligibility, always consider it if you are benefitting in the long run. Before you go for it, do use a home loan EMI calculator to check how much money you’re saving.
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