Refinancing Your Home
Even though refinancing a housing loan can save you 1000’s of dollars you will be astounded that not that many people in reality take the time to do it. If you considered the time it requires and figure out the cost saving and compare 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 mortgage today.
Current Interest Rate
It is definitely a positive indication for you to explore 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 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 commonly 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, normally 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 housing 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 mortgage amount, the greater 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 comprises 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 loan as fixed cost eats into a more substantial share 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 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, changing 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 details via refinancing. For example, you are opening your own business and do not want volatility in other areas. Give some consideration to taking up a fixed rate package. Maybe you want cash to invest in another property. Consider raising your loan quantum. Or your monthly income has increased and you want to minimise interest loan payments. Contemplate 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 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 irksome process.
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