Homeowners in Singapore are wary of the security of their jobs or stability of interest rates. About half of the mortgage packages in the market are floating rates, pegged on the Singapore Interbank Offered Rate (SIBOR) or Swap Offer Rate (SOR) which exacerbates anxieties over changing rates.
Often, property owners seek to shift from one loan package to another either within the original bank or to another bank together. This is called refinancing a home loan. The motivation is often the desire to alleviate the cost of servicing the mortgage.
Home loan refinancing is always about the opportunity cost. Below are seven questions to guide you as you ponder on these.
What Is the Outlook on Interest Rates
When interest rates are rising, refinancing is a viable option. Homeowners can take up offers of fixed rates or floating rate packages or a combination to counter the effects of rising rates.
What Are the Interest Reset Dates?
If your home loan package is pegged to the SIBOR or SOR keep in mind that you could incur extra penalties when you redeem the loan on a date that is different to the specified interest reset dates.
Are You Enticed by Subsidies and Short-Term Cost Cuts?
Some banks offer subsidies to cover the cost of refinancing your home loan and manipulate your perspective. They entice you to take up their home loans by subsidising legal fees, insurance premiums and valuation fees.
Carefully examine your motivation and objectives against the whole package of refinancing your home loan.
How long is the Lock in Period and what are the Charges?
Most banks include a lock-in period, between one and three years in their home loan packages. During this period, the borrower cannot shift to a different bank. However, banks often leave a little leeway to this by permitting early redemption of a home loan. Premature redemption often comes with an array of charges including prepayment penalties, cancellation fees, legal fees and valuation fees.
Consider the impact of the different penalties and charges and weigh them against the anticipated savings in interest payments.
How are you Affected by the Refinancing Regulations?
The Monetary Authority of Singapore gives guidelines to regulate how borrowers can switch their home loan package within the same bank or to a different bank. For instance, the Total Debt Servicing Ratio review (TDSR) which requires the bank to perform a comprehensive appraisal of the proposed loan by examining the borrowers’ current and future financial commitments.
What Options Exist Within Your Present Bank
Speak with a representative from your current banker, who will help you understand your package and explore the options within –which are less tedious and less costly – before choosing an alternative bank.
Homeowners often associate refinancing of a home loan with a change of the bank and several forego better options with their home bank due to such ignorance.
What Other Options Do You Have In Managing Your Home Loan
There are several options to manage mortgage payments and achieve significant cost reductions. For instance, property owners can make capital reduction payments thus reducing the loan duration.
As you ponder on the options of refinancing your home loan, the above pointers will guide you to the right solution. Finally, you should always compare housing loan rates in Singapore to reduce the chances of having to refinance it eventually.