Refinancing Your Home

Nov

18th

Author: Felicia Chew | Files under Home Loan

When it comes to mortgages, many people don’t refinance. A large number are unaware they have the choice of changing their loan to different financier; others are simply apathetic. They stick with their very first lender and the “reward” for such loyalty tends to be higher interest rates. Due to the magnitude of mortgages and the tenure that the mortgage is amortised over, the interest we are speaking about here can well stretch from thousands to 100,000’s of dollars. Take a look at the following components to see whether it’s time for you to consider refinancing.

Current Mortgage Interest Rate

It is decidedly a positive indication for you to explore refinancing when your current interest rate is higher than available home loan packages on the market. A first step to take is to go back to your current banking company or financial institution and ask them to revise your package, otherwise known as repricing. If your lender comes back with an offer, it will normally be better than your current one. You can then compare this offer with offers from other lenders to see whether you should switch or stay put.

Lock-in and Clawback Periods

When you take up a mortgage, there may be a lock-in period where your housing lender will charge you a penalisation fee, ordinarily a percentage of your outstanding loan value, if you were to fully repay your home loan. Almost all housing loans also come with a clawback period where the lender will claim back “freebies”, such as legal expenses, that they “gave” you when you take up your home loan (Note: lock-in period is separate from clawback period). It may not be valuable for you to refinance due to such costs.

Loan Quantum

The larger your mortgage amount, the larger your savings for the same decrease in interest rates. For example, 1% on a loan of S$100,000 is much less than 1% on a loan of S$500,000. However, fixed cost to refinancing, which comprises mainly of legal fees, do not vary much with loan quantum. The difference between your current and refinancing interest rates, therefore, has to be bigger for a relatively smaller home loan as fixed cost eats into a more significant portion of your interest rate savings.

Perceived Interest Rate Movements

Your view on how interest rates is moving can be a factor when thinking whether you should refinance. If you are currently on a fixed rate package and think interest rates are dropping, you may want to refinance to a floating rate package. Conversely, if you are on floating rates and believe interest rates are rocketing, converting to fixed rates may be a good choice.

Personal Financial Appraisal

If there is a change in your financial state, you may want to change your package particulars via refinancing. For example, you are beginning your own business organisation and do not want volatility in other areas. Give some consideration to taking up a fixed rate package. Maybe you want cash to invest in different place. Consider raising your loan quantum. Or your monthly income has increased and you want to reduce interest loan payments. Contemplate reducing your loan tenure.

Consider calling us today if you are looking for refinancing in Singapore. We can save you a lot of money plus give you the latest advice all for free.

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