HOME FINANCING: Two home loans? Combine them into one

It can be challenging to handle multiple home loans when interest rates are high and you have no additional income to manage higher interest rates. There can be several other challenges of having multiple home loans, but if you can club them into one, then it can allow you some breathing space.

What are the options? If you want to combine two different home loans into a single loan, you can do it by using the debt consolidation approach.

Let us understand the different ways to consolidate the two home loans and save money.

Debt consolidation approach

When managing two home loans at the same time, you require lots of financial discipline and need to keep a strict tab on changes in interest rates. Depending on the size of the loan, repayment tenure and your credit score, there may be different interest rates on each loan.

In the long term, even a little spike in the interest rate can make a huge difference to your overall repayment requirement. Having two big loans at the same time can reduce your capacity to get a new loan. If both the home loans are from the same lender, a default in repayment of any one of the home loans can impact the other loan as well. In such a situation, you can combine both the home loan accounts into one by using the debt consolidation option.

Identify a lender with lower interest rate

You can consolidate both home loans into one loan by using the home loan balance transfer option. First, you need to explore the appropriate lender that allows you to consolidate two home loans at a lower interest rate using the balance transfer and levying zero or a very low charge on it. The lender will assess your creditworthiness and loan eligibility to repay the combined loan amount. You also need to take consent from the existing lenders to transfer your loans.

The new lender will pay the outstanding amount to the existing lenders to close both home loans. Your home loans will be consolidated into one. You will now have a single home loan with your new lender. Once your home loans are consolidated, you have a single loan to repay.

Taking a top-up loan

There can be more ways to consolidate home loans. You can take a top-up loan facility on one of your existing home loans to close the second home loan. It will make one of your properties debt-free.

However, it is only possible when you have adequate top-up loan amount eligibility in either of the existing home loans. By consolidating, you can save lots of interest in the long term and save the repayment tenure as well.

Benefit of Consolidating

Let’s understand how much money you can save by consolidating two home loans with the help of an example below:

When consolidating, wherein the new loan is offered at a lower interest rate, you get various repayment choices. There are two options in the illustration. Option-I shows the consolidation of loans while keeping the EMI the same (equal to the combined EMI of two home loans). It significantly reduces the repayment tenure and total repayment requirement. Option II shows the consolidation of loans while keeping the repayment tenure unchanged. It significantly reduces the size of the EMI and also lowers the total repayment requirement.

Things to keep in mind

You must check with the lenders if they are ready to offer a consolidation option. Get your eligibility checked for a new loan. Maintain a high credit score before loan consolidation to secure the best interest rate. Get clarity on charges which may be levied by lenders when closing the existing home loans and also charges levied by the new bank when consolidating your loans.

Adhil Shetty, CEO, Bankbazaar.com, says, ““Check your credit score as it plays a crucial role in determining your loan eligibility and interest rates. A higher credit score usually leads to better loan terms. Assess your financial situation and determine how much you can afford to borrow. Consider your income, expenses, and existing debts to gauge your repayment capacity. Compare loan offers from multiple lenders to find the best interest rates and loan terms. Consider the loan amount, interest rate type (fixed or variable), and repayment period before taking any decision.”

The terms and conditions pertaining to the home loan consolidation and balance transfer may vary from bank to bank. So, the borrower should seek professional advice before acting on the information provided above.

ONE TOO MANY

* If both the home loans are from the same lender, a default in repayment of one can impact the other

* Maintain a high credit score before loan consolidation to secure the best interest rate

* Check if existing & new lenders will charge any fee for loan consolidation

* By consolidating, you can save on sizeable interest in the long term

* It will help reduce the repayment tenure as well

* You can also take a top-up loan facility on one of your existing loans to close the second one