When it comes to housing loans, numerous individuals do not refinance. A significant number are unaware they have the alternative of changing their loan to another 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 mortgages and the tenure that the mortgage is amortised over, the interest we are speaking about here can easily stretch from 1000's 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 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 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 commonly be better than your existing 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, usually a percentage of your outstanding loan value, if you were to fully repay your loan. Almost all mortgages 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 worthwhile for you to refinance due to such costs.
Loan Quantum
The larger your housing loan amount, the greater your savings for the same reduction 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 existing and refinancing interest rates, therefore, has to be bigger for a relatively smaller housing loan as fixed cost eats into a more significant 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 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, switching to fixed rates may be a positive choice.
Personal Financial Appraisal
If there is a change in your financial state, you may want to vary your package particulars via refinancing. For example, you are beginning your own company and do not want unpredictability in other areas. Give some consideration 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.
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 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 tedious procedure.
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