When it comes to mortgages, many people do not refinance. A large number are unaware they have the alternative of switching their loan to different financier; others are simply apathetic. They stick with their very first loaner and the "reward" for such loyalty tends to be higher interest rates. Due to the magnitude of housing loans and the tenure that the home loan is amortised over, the interest we are talking about here can easy extend 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 definitely a good indication for you to research 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 housing loan, there may be a lock-in period where your housing lender will charge you a penalisation fee, usually 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 subsidies, that they "gave" you when you take up your home 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 greater your savings for the same decrease 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 significant 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 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 skyrocketing, shifting to fixed rates may be a solid choice.
Personal 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 starting your own company 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 different property. Consider increasing 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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