Refinancing Your Home

Even though refinancing a housing loan can save you thousands of dollars you will be dumbfounded that not that many people actually take the time to do it. If you considered the time it requires and calculate the cost saving and equate that to how much you get paid per hour it could be like not going to work for several weeks. Consider the following aspects so that you can see how simple it is to refinance your loan today.

Current Interest Rate

It is definitely a good indication for you to research refinancing when your current interest rate is higher than available 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 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 mortgage, there may be a lock-in period where your housing lender will charge you a penalty fee, normally a percentage of your outstanding loan amount, 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 housing loan amount, the larger 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 comprises 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 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 thinking 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 skyrocketing, converting to fixed rates may be a effective choice.

Personal Financial Assessment

If there is a change in your financial state, you may want to alter your package particulars via refinancing. For example, you are starting your own company 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 another property. Consider increasing 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 interview. Our professional consultants 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 boring procedure.

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