Home Loan Refinancing
In home loan industry the term home loan refinancing is used in two contexts.
1) Home loan balance transfer
2) Funding on the already purchased residential property
1) Home Loan Balance Transfer
When a home loan is transferred from an existing lender Bank/NBFC to a new lender Bank/NBFC, it is called as a home loan balance transfer. Meaning your existing loan is refinanced by the new lender whereby your existing loan with the existing lender Bank/NBFC is closed to be transferred to the new lender Bank/NBFC for the equivalent amount. Such a process of home loan transfer is referred to as refinancing in the home loan industry. The term refinancing is also referred to – commercial loan balance transfer & mortgage loan balance transfer.
Refinancing, loan switch over & loan balance transfer are some common phrases that are alternately used to address the same process of loan transfers.
2) Funding the already purchased residential builder property
Well, we all know about the funding provided on the property (residential as well as commercial) i.e. the home loan/commercial loan funding & the funding against the property i.e. the loan against property. But most of us are unaware of the funding provided on the already purchased residential builder property which is known as home loan refinancing. People have a misconception about home loan refinancing considering it to be mortgage loan/loan against property. However not known to many the following are the lesser-known facts about the home loan refinancing which remains unfamiliar in the society.
What do you mean by home loan refinancing?
Meaning: The word refinancing itself means financing again, and therefore home loan refinance means taking out a fresh new loan on the property which the borrower has already purchased from the builder through his own contribution funds. In such a scenario when an individual purchases a residential property from the builder through his funds without taking any home loan and within 6 months of the purchase of the property approaches the bank for the loan on the same property, it is called home loan refinancing. The loan amount in refinancing directly falls in the hands of the loan borrower.
Important highlights of home loan refinancing
1) The property in home loan refinancing has to be a residential property. No commercial property or resale property is considered for home loan refinancing.
2) Home loan refinancing is possible only in under construction builder properties or ready to move builder properties who’s OC (Occupancy Certificate) is yet to come.
3) However, it is important to note – the builder property that has received the OC – funding provided against the OC received property will not be considered as refinancing. It will be treated as mortgage loan/loan against property and therefore the standard mortgage processing fees and rate of interest will be applicable.
4) A loan borrower has to apply for refinancing within 6 months from the purchase of the property.
5) Important documents required for refinancing are the documents showing the payment made to the builder for purchasing the property, viz. builder payment receipt and the borrower’s bank account statement.
Benefits of home loan refinancing
1) Refinancing is best for a borrower who is looking for his immediate requirements of funds @ low cost for borrowings.
2) A loan refinanced within 6 months of the purchase of the residential property is considered as good as a home loan and therefore is also eligible for tax benefits.
3) Since it is treated like a home loan the applicable rate of interest is similar to that of home loan interest rates.
4) The calculation of LTV (loan to value) on the property is as per the home loan LTV guidelines.
5) There is no difference in the eligibility calculation of the borrower. The eligibility criteria for home loan refinancing remain the same as the home loan eligibility and loan against property eligibility.
6) There is no additional cost for home loan refinancing apart from the standard bank charges and fees.
7) All lender Banks/NBFCs provides home loan refinancing.
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