Home loans are without a doubt one of the most significant obligations that people will incur in their lifetime. A typical home loan is worth 30 lakhs or more and lasts 10 to 30 years. Home loans are typically repaid through monthly EMIs. Both the principal borrowed and the interest charged is included in the EMI. A home loan’s interest rate might easily reach several lakhs.
Given the long-term and huge loan amount, even a little drop in interest rates could dramatically lessen the overall cost of the loan. Borrowers frequently discover that their interest rates have lowered since the start of their loan. However, because they are locked into a fixed-rate home loan, they are unable to profit from the current interest rate cut.
Home loan refinancing is a tremendous help in these situations. The process of moving an existing home loan from one buyer to another in order to take advantage of lower interest rates is known as refinancing or home loan transfer.
Benefits of home loan balance transfer
When you transfer your existing home loan from one lender to another, you benefit from cheaper interest rates, which decreases your monthly EMI.
- Better interest rates
- With the new lender, you’ll get better service.
- Reduce or extend the term of your home loan
- Credit scores have improved.
- Top-up loans are available.
Impact of Credit Score on Refinancing a Home Loan
Before granting any loan, including home loan balance transfers, banks look at an individual’s credit score. A credit score is a numerical rating given to a person based on his or her credit history. The higher a person’s credit score, the greater his or her ability to repay debt. Borrowers with good credit ratings are preferred by lenders because they are deemed trustworthy and low-risk.
Credit scores range from 300 to 900, with 900 being the highest achievable. It is calculated by many credit bureaus based on a variety of parameters such as credit use, payment history of previous loans and credit card bills, forms of credit, and so on.
The lower the credit score, the less likely you are to default. As a result, lenders prefer to lend to applicants with higher credit scores. Credit scores are lowered when loan EMI payments are missed or credit card bills are not paid on time. Similarly, high credit card limit utilization implies that a person requires a large amount of credit, which decreases the credit score.
What credit score is required for refinancing a home loan?
There is no set number that serves as a criterion. Instead, lenders assess home loan balance transfer eligibility on a case-by-case basis. Having excellent credit scores and strong credit history, on the other hand, will help you get the greatest potential interest rates.
Borrowers should follow these tips to get better interest rates on house loan balance transfers.
- Examine your credit report and score. This stage should ideally be completed before applying for a home loan refinance. This gives you plenty of time to rectify any problems and focus on boosting your credit score.
- Do not submit requests for balance transfers to several lenders. This may lower your credit score because it raises the amount of credit report inquiries.
- If you have an excellent credit score and a spotless loan payment history, you should work hard to get the best available interest rates from the lender.
- Work hard to increase your credit score once your request for a house loan transfer is granted and sanctioned. This allows you to benefit from future home loan interest rate reductions.
Home loans are large-ticket loans, and even a small reduction in interest rate could save the borrower lakhs of rupees. However, you must concentrate on increasing your credit score in order to be eligible for the best potential interest rates on a house loan transfer. Before approaching a lender for house loan refinancing, make sure to verify your credit score and concentrate on increasing it.