Home Finance In Singapore

When it comes to mortgages, numerous individuals don’t refinance. A fundamental number are oblivious they have the option of changing their loan to different financier; others are simply indifferent. They stick with their very first lender and the “reward” for such loyalty tends to be higher interest rates. Due to the magnitude of housing loans and the tenure that the mortgage is amortised over, the interest we are talking about here can easily 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 Interest Rate

It is decidedly a positive indication for you to research refinancing when your current interest rate is higher than available mortgage packages on the market. A first step to take is to go back to your existing bank or financial institution and ask them to revise your package, otherwise known as repricing. If your lender comes back with an offer, it will usually 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, usually a percentage of your outstanding loan amount, if you were to fully repay your loan. Almost all loans also come with a clawback period where the lender will claim back “freebies”, such as legal subsidies, that they “gave” you when you take up your loan (Note: lock-in period is separate from clawback period). It may not be worthwhile for you to refinance due to such costs.

Loan Quantum

The larger your loan amount, the greater your savings for the same reduction in interest rates. For instance, 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 represents mainly of legal fees, do not vary much with loan quantum. The difference between your existing and refinancing interest rates, therefore, has to be bigger for a comparatively smaller housing loan as fixed cost eats into a more substantial portion of your interest rate savings.

Perceived Interest Rate Movements

Your view on how interest rates is moving can be a factor when considering whether you should refinance. If you are currently on a fixed rate package and believe 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 positive choice.

Individual Financial Assessment

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

If looking through this article is giving your a headache or you simply want to save yourself the trouble, contact us for a non-obligatory home loan consultation. Our professional advisors not only frees up your time but also do not charge any fees to help you get the best deal. Refinancing does not have to be a long-winded procedure.

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