When it comes to housing loans, numerous people do not refinance. A fundamental number are unaware 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 order of magnitude of mortgages and the tenure that the housing loan is amortised over, the interest we are speaking about here can well extend from thousands to hundreds of thousands 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 definitely a good indication for you to explore 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 ordinarily 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 housing loan, there may be a lock-in period where your housing lender will charge you a penalisation fee, ordinarily a percentage of your outstanding loan amount, if you were to fully repay your home loan. Almost all home 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 commendable for you to refinance due to such costs.
Loan Quantum
The larger your housing loan 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 represents 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 comparatively smaller mortgage 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 presently 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 positive choice.
Individual Financial Appraisal
If there is a change in your financial state, you may want to alter your package details via refinancing. For instance, you are opening your own business and do not want volatility in other areas. Give some thought 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. Consider 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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