It is no longer uncommon to have more than one home, especially for families or investors who are upgrading to a larger home. But paying two mortgages can be stressful on finances as well as an administrative nuisance. Borrowers wonder if it is possible to merge the two mortgages into one mortgage in a bid to simplify repayment. The idea may sound reasonable, but the process itself is not as straightforward as it may appear.
Is it possible to merge two home loans?
In the majority of cases, banks or housing finance companies do not permit two home loans to be clubbed into a single loan, especially if the loans are on different properties. The loans are each secured against a different property that has its own title and documentation. The lenders, therefore, treat them as different and do not make provisions for their consolidation into one document of loan.
Other ways to ease the burden
Whereas loans may not be combined outright, you can view restructuring. Home loan balance transfer allows you to relocate both loans to a new lender with lower rates. Even after transferring, the loans remain separate entities unless refinanced with a specific refinancing product.
The second option is to foreclose one loan and take a top-up loan over the other property if it appreciates in value. This again depends on your eligibility, payment history, and property valuation at today's market price. Loan against property (LAP) borrowers in some cases opt for the LAP, where the borrower obtains a new loan by pledging one or both the properties. LAPs may also roll up your debts, but they usually have higher interest rates than regular home loans.
Things to take into account before restructuring
Refinancing or restructuring comes at a cost—a processing fee, new documentation, revaluation of the property, and possible foreclosure fees. Your income, credit score, and repayment ability will also be reevaluated by lenders before they sanction any fresh loan or top-up. The advantages of consolidation have to be balanced against such expenses and the long-term effect on your financials.
When is it preferable to continue with standalone loans?
If both home loans fall in the affordable EMIs, have reasonable interest rates, and have low outstanding tenures, it may be more cost-effective to continue paying them as they are. Or, if either of the loans carries a higher rate or lower amount, paying off that one first may ease the load overall without the hassle of refinancing.
Before you merge or consolidate your home loans, consult with your bank or financial planner. Every situation is different, and the best solution would depend on your income stability, interest rates, and future plans.
FAQs
1. Can I consolidate home loans if the properties are elsewhere?
No, lenders do not usually allow consolidation of home loans on other properties, particularly in another city or with a different title. There is an underlying security asset for each loan and cannot be consolidated into another loan based on usual banking practice.
2. Will consolidating loans reduce my monthly EMI?
Bunching or combining loans can minimize your EMI if you pay them over a longer period or choose a lower rate of interest. However, a longer repayment period may increase your overall interest outgo. Do keep in mind to calculate short-term and long-term costs before moving ahead.
3. Whether you repay one home loan before time instead of bunching them?
Yes, if there's one of the loans that has a low outstanding amount or a higher rate of interest, prepaying it may be a less complicated and less costly affair. That reduces your EMI load and improves your credit score, all without the paperwork and fees of refinancing.
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