In a weird case of déjà vu, the world is now back to the new norm of low-interest-rate environment.…
When is the Right Time for Home Loan Refinancing? : A blog around home loan refinancing in Singapore.
Most of us will probably be spending our lifetime paying off mortgages. Despite that fact, there are few people who understand the inner workings of home financing in Singapore. This detailed Home Loan Refinancing 101: All Singaporeans Should Know guide helps you understand why, when and how to refinance your loan to get a lower interest rate or shorten your loan term.
The truth is, most Singaporeans don’t understand what refinancing their home loan actually involves. They hear ‘refinance’ and jump to conclusions like: “I’m so happy I’m getting a lower interest rate for my home loan! I’ll be paying less every month! Hurray!”
Refinancing your mortgage is simply the replacement of an existing loan with a new one. It has two main purposes:
This is achieved by getting a new home loan at a lower interest rate, extending the tenure of the loan, or both. However, taking on a longer-term loan means that you’ll be paying more in interest over the entire duration of the loan, even if the monthly instalments are smaller.
This is done by taking on a higher loan than what you currently owe, so that you can use the difference (the amount between your current loan and the new one) to take care of other financial obligations or make purchases. Note that this will increase your monthly instalments since you’ve effectively borrowed more money from the bank.
A home loan refinancing is an option for homeowners who want to tap on their assets to obtain extra cash. It is also a good way to pay off an existing home loan faster.
With mortgage refinancing, you can even opt for a fixed-rate package that protects you from rising interest rates. A longer tenure can also help you lower your monthly payments and free up cash flow.
When you refinance, you are taking out a new loan to pay off your old home loan. Typically, people do this to take advantage of lower interest rates and save money on their mortgages.
Repricing, on the other hand, allows homeowners to switch to a more competitive loan package from the same bank.
Both options aim to lower the amount of interest you pay on your loan.
To learn more about fixed rates vs variable rates, see the MoneySense article on How home loans work.
If you are looking for the best home loan rates, you could consider refinancing your home loan. Refinancing your home loan involves taking a new home loan to repay your existing home loan.
There are various reasons why you may want to refinance your home loan in Singapore. For instance, if you are unhappy with the current interest rate of your existing loan, or if you have a better understanding of the various mortgage products available and can find one which offers more favourable terms than the one you have now, it makes sense to refinance.
Reasons for refinancing your home loan in Singapore
Refinancing your home loan is not a decision to be made lightly. It involves a lot of thinking, research and paperwork. Although some people may take the plunge without much consideration, you should really think it through before you do so.
Here are some things to consider before refinancing:
You must give banks at least three month notice before refinancing your mortgage loan. If you want to refinance before your lock-in period ends, you’ll pay penalties. Plan ahead and give yourself at least 4 months to begin the refinancing process.
Some housing loan packages offer you the option of switching to a different loan package from the same bank (repricing) at a later date. Note that this is not the same as changing banks (refinancing). Repricing means you are switching to an existing loan package but with changes in terms of interest rate, loan tenure or any other variables.
If you’re looking to refinance your home loan or need a new one, be sure to read about the various fees involved. Although refinancing might cost you as much as S$3,000—and that’s not including other costs—repricing might only cost you as little as S$600. Some lenders even provide free repricing options.
If you can reprice for free, your savings may be higher than refinancing. For example, if you reprice from a loan at 1.8 percent to 1.6 percent, you might save more than if you refinance from a loan at 1.8 percent to 1.5 percent
Pay attention to the long-term rates of any packages you’re considering. The low initial rates will likely expire before you have time to benefit from them.
For example, say your current loan package has a “fourth year and thereafter” rate of 3M SORA + 0.8%.
And you decide to refinance into a loan with a lower interest 3M SORA + 0.5% for the first three years, and 3M SORA + 1.3% for the fourth year and thereafter.
Let’s say you’re saving money during your first three years. If you leave that home loan when the four-year mark hits, your monthly payment will be higher than your current one—and you won’t have a cheaper loan to refinance into.
When that rate hike comes around, you may be unable to find other loans with a final rate as good as your current package. If you have a long time yet to service your loan, focus on the final rates.
The exception in this scenario is if you intend to sell the house, before the jump in interest rates happens.
You have successfully made the decision to refinance your property loan, but now you need to find a Home Loan Specialist who can answer all your questions and make sure you get the best rates. Your Specialist will walk you through the entire refinancing process, and help you identify whether or not refinancing is right for you.
Home Loan Specialists are financial advisers that specialize in property loans. They are not tied down to any one bank. As such, they can shop around for the lowest rates and put forward a strong case for you to banks on your behalf. They are experts in the field and their job is to get you the best deal possible.
So when is the right time for home loan refinancing? If you can’t wait to grab a cheaper loan, what you need to know is that it is definitely possible to refinance your home loan. However, not every lender will approve your application. Ensure that you meet the conditions before applying for a loan – income, credit score and debt-to-income ratio. The good news is that there are many mortgage lenders willing to help you out – just make sure that you find one like Moneyline.SG who has loan consultants who will walk you through the entire process.
