Holding multiples loans concurrently can be troublesome. But you already know that; that’s why you are here. So the question is whether you can consolidate your home loan with your other loans. The short answer is yes, you can. If that sounds like music to your ears, then you really to know about loan consolidation.
Loan consolidation means getting one big loan to replace all your different loans. Let’s say you have a home loan, a car loan, a personal loan, and a few credit card loans. Each has a different interest rate and a different due date. Just think of the all the trouble you will have keeping track of all these different loans.
It is no wonder people with multiple loans often miss a payment or two and end up paying late payment fines, which adds to the cost. But it’s not remembering the due dates that’s’ the real problem. When you have several different interest rates that change every month or every annual quarter, it takes a lot of math to find out why you are paying a certain amount in a certain month.
Another big disadvantage of multiple loans instead of one big loan is that the sum of all the different rates is often greater than the interest rate on the single loan. This means you will be paying more every month and more by the time you finish paying all the loans. In short, having many different loans simultaneously can be more expensive than one consolidated loan.
Now, you can’t just consolidate all these different loans with your home loan when taking out the home loan. Whether you take out the loan from the HDB or a bank, they will give you the loan only for the purchase of the house and not to pay off your other loans. But there is a way out and it’s called refinancing your home loan.
Refinancing a home loan involves taking out a new loan to pay off your existing mortgage. This may just be the opportunity you are looking for. You can use this new loan to pay off your other debts in addition to your home loan. So when refinancing your home loan, what you are actually doing is consolidating your loans. This is a very neat solution to several pesky loans causing disorganisation in your life.
To be able to refinance your mortgage, you must have equity in your home. This means when you deduct the mortgage balance from the market value of your home, there must be a positive balance. For example, if the market value of your home is $800,000 and your mortgage balance is $500,000, then you have an equity of $300,000.
Another condition is that the lock-in period must have expired. This the first 2 – 3 years’ period after taking a home loan during which the lender (bank) will not allow you to refinance your loan without paying a fine. Once the period has expired, you can refinance your loan from the same lender or a different lender. The choice is yours.
Find a lender who will give you a good interest rate and favourable conditions. Consult with one or more loan agents and people who have refinanced their mortgage. Make sure to compare home loan rates in Singapore before signing up with any lender. The personal financing market is a very competitive market and there are always one or two lenders who are willing to give you a bigger discount than their competitors.