Is Now the Right Time to Refinance your House Mortgage

“Nearly 50% of the top 500 corporate borrowers in the country will get a hard time refinancing their loans,” read a report by a leading rating agency, India Ratings (Ind-Ra). According to the report, these borrowers having taken loans that amounted to ₹11.8 lac crore, of these, ₹5.1 lac crore were already stressed while another ₹6.7  lac crore faced a high risk of refinancing. But this was back in 2016; things have only escalated even to encourage a house mortgage refinancing.

Moreover, further reports support the idea that this is the best time to consider going for a refinance. Another agency, the Indian subsidiary of Fitch Ratings also gave its analysis on the biggest borrowers. The analysis shows that240 of the largest 500 “are exposed to a significant risk of refinancing ₹1.4 lakh crore debt in FY17.” And although it is considered a risk, it is actually a win-win situation for you if you look at what you stand to gain in the long run.

There are various reasons why someone might refinance their house mortgages. Some of the reasons which may prompt you as a home owner to refinance your house mortgage may include;

  • Consolidation of debts,
  • To take advantage of mortgages with lower interest rates,
  • The need to convert to a fixed-rate mortgage from an adjustable-rate mortgage,
  • Shortening themortgage term
  • Financing a larger purchase by tapping into the home’s equity.

Refinancing is a risk laden venture with unpredictable pitfalls. It is for this reason that you must be very keen as youdecide when to refinance your mortgage. For those who have been keeping a sharp eye on the mortgage trends and updates, you must have noted that the mortgage rates are still low although the housing market is steadily recovering. Therefore, the time to act is now given that the interest rates will not stay down forever. According to the chief market analysts at Karkanja, 2014 was the only year in the country’s history to record an all timelow mortgage interest rate hence leading to an influx in house mortgage refinancing. You also ought to ask yourself what benefits await you if you choose to refinance your house mortgage now.

A Reasonable Decrease in Mortgage Rates

Latest statistics reveal that the nose dive in interest rates should be enough reason for wanting to refinance your mortgage now. Not many chances to take advantage of a decrease in interest rates exist given such a rare opportunity; it would only be wise to take advantage of it now.

As you look to justify the reason for refinancing your mortgage now due to lower interest rates there are some corner points to put into consideration;

  • It is relatively invaluable to try and predict future trends in mortgage interest rates. Many people predict future trends only to be thwarted by unforeseen political and economic twists. It is therefore of theessence to strategize whether or not you are going to refinance your house mortgage basing on today’s trends.
  • Of more interest is the gain or expected monthly savings.

Consider a point in case as follow, say you have an outstanding loan of today is Rs. 50 lakhwitha current interest rate of 11.5%. This means you are paying monthly installments of Rs. 53,322 and so you are 20 years away from being in a debt free status. However, choosing to refinance your house mortgage now means with at a rate of 10.5%, you will pay an EMI of Rs. 49,919 hence saving youRs. 3404 per month.

Alternatively, you can still maintain a constant EMI constant. Thus choosing to pay Rs. 53862 of EMI, this means in just 16 years you will be debt free. As a result,refinancing a mortgage with 20 years remaining for 30-year loans that you will start paying lower monthly repayments.

  • Consider the tax implications that accompany your mortgage repayments.
Possibility of Shorter Loans

Karkanja notes that majority of homeowners have been able to take out short-term loans. This has enabled them to pay down the principal as well as build a home equity quicker.

Although short term loans are in effect mean that you will have to incur higher monthly repayments, this scheme will save you in the long run.

Potential Rise in Your Credit Score

Another reason that may lead you to refinance your existing mortgage now is that your credit score has risen. Based on your credit score, the current mortgage rates could vary as high as by 1.5%. A lower credit score would mean that you may end up paying more on your monthly repayments. At the moment, several banks can cap such charges say Rs. 25000. Some banks do waive it tolure good customers especially those with a CIBIL or credit score of higher than 750. As a result, if your CIBIL score is good enough, somewhere between 750 and 900, you stand to save on refinancing costs a great deal.

Consolidating your Debt

You may choose to refinance your mortgage now because you want to consolidate your debt. Sometimes home owners utilize their home equities to cover other expenses such as college fees. Refinancing for debt consolidation comes with its conditions. This is the reason why you need to think about the aftermath of your house mortgage refinancing critically. You must be sure that you won’t plummet into other debts.

A Reasonable Break-Even Point

Your break-even point, calculated as the time it would take for the mortgage to pay itself, could be a reason for you wanting to refinance your mortgage. If your plans are to stay in a house for a period longer than the break-even, now would be a good time to refinance the mortgage on your house.

Refinancing a house mortgage is a tactical move that should be done with precise information on mortgages. Make the right move at the right time, and you could save yourself a lot of money in the long run.

 

About the author:
This guest post has been written by Elena – Real Estate Analyst & Interior Designer at Karkanja.com. When she’s not at her desk, Elena enjoys going on diving trips around the world.

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