When you hear your colleagues at work or friends say that they want to get a better deal for their homes or some extra cash, do you wonder why they are considering refinancing their home loan? Why are they taking up a new mortgage to settle the old one? Wasnâ€™t the initial deal good enough?
Many homeowners in Singapore consider refinancing when they foresee a drop in the interest rates, or when they want to reduce the loan tenure. There are those who refinance their existing loans to take advantage of the home equity to meet other expenditures.
But what should the top priority be when you are thinking about refinancing your mortgage loan? Should you always be comparing housing loan rates in singapore to get the best deal? Below are four things to consider before refinancing housing loan.
What is the Outlook on Interest Rates?
Rising interest rates provide a perfect opportunity to refinance a housing loan at more favourable rates. On the other hand, if rates are dropping, the smart thing to do would be to be on the look-out for an opportune moment to refinance at even lower rates.
You can consider various options such as a fixed rate or variable rate, pegged on the SIBOR or SOR. Also, you can go for a combination of both a variable and fixed rate loan.
However, homeowners should consider the entire mortgage package and its implications. They should ensure that it suits their needs and that it is in tune with their financial ability rather than just going for lower interest rates.
The Lock-in Period and the Charges
As soon as you start looking at the options for refinancing home loan, you should keep in mind the lock-in period and the charges of your existing mortgage.
Most mortgage financiers in Singapore provide a lock-in period of between one and three years. During this period, you have to maintain the mortgage with the same bank. If you opt to redeem it before the lock-in period expires, you will incur hefty charges and penalties that often negate any financial benefits you would acquire from refinancing your home loan.
Some of these charges include prepayment penalties, cancellation fees, legal fees, valuation fees and recovery of any subsidies that could have been involved in the initial offer.
You may want to bank hop when refinancing your mortgage loan, but this is not entirely up to you. Yes, the industry regulator, the Monetary Authority of Singapore, has set out some rules to regulate refinancing of home loans. Before a bank approves your application for refinancing a home loan, it has to satisfy all the requirements by MAS. One such requirement is a review of your present Total Debt Servicing Ratio, to ensure it is in line with your present and future commitments.
Is it a Catchy Subsidy or Fees Waiver?
Letâ€™s face it, banks are businesses, and they are not immune to marketing and sales gimmicks to attract clients. Some banks will offer extraordinary fee waivers and subsidies just to get you to take up their home loans.
The subsidies reduce the cost of refinancing a housing loan and usually affect legal fees, valuation fees, or insurance premiums.