Are you having trouble repaying your mortgage loan? Do you think the interest rate you are paying is too high? Do you want to shorten the loan term and become debt-free quickly? If your answer to all three questions is yes, then the solution could lie in refinancing your loan. Refinancing meaning trading your loan with another loan with a more favourable interest rate and term.
The first step in refinancing a home loan is to determine whether it’s the right time or not. You can’t move your loan at any time you like. Banks won’t just let you go without penalising you. The first 2 – 3 years after you have taken the loan is called the lock-in period. If you move your loan during this period, you will have to pay a fine of 1.5 – 2 percent of the outstanding loan.
If you have a loan with interest rate pegged to Singapore Inter-Bank Offered Rates (SIBOR) or Swap Offered Rate (SOR), then the bank may ask you to redeem your loan before the interest rates are reset. SIBOR and SOR interest rates are reviewed every month or every quarter.
The right time to refinance your home loan is when the lock-in period has expired and before the SIBOR and SOR rates are reviewed.
Once you have decided to refinance your loan, the next step is to inform your bank of your intentions. Since banks usually take three months to approve your request, you will have plenty of time to find another lender. You can either refinance with the same bank or another bank. The important thing is to find a refinancing package that has a lower interest rate and other things you are looking for.
When applying for refinancing, you will be required to submit a copy of your SingPass, last 15 months’ CPF contribution history and last 3 months’ play slip along with the completed application form. The documents and information you have provided must be accurate to the smallest detail and must not contradict each other. If the bank’s loan reviewer finds even a small discrepancy, he or she may reject your application.
The application, along with the valuation, is reviewed by the bank’s credit officer whose job is to determine that you have financial resources to pay back the loan. He or she may ask you a number of questions to ascertain that the information you have provided are correct. If he is suspicious, you may even be asked to submit additional documents.
Once the credit officer is satisfied, he will issue a letter of approval. The next step is to get your loan agent to lock the mortgage rate. This protects you from a rate rise.
The final step in refinancing a home loan is to sign the loan agreement and obtain the loan. Make sure to do this before your rate lock expires. Otherwise, you will have to pay the current, floating rate. After signing the document, the fund will be released to pay off your loan. Now you will have a new loan with a different interest rate and a different term.