Can Refinancing Loans Affect My Credit Score?

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Can Refinancing Loans Affect My Credit Score?

Refinancing simply means swapping out one loan for another. Whenever you are thinking to refinance mortgage loans in Singapore, there are some important things to consider:

  1. Can refinancing affect your credit score? Refinancing your home mortgage could be an excellent way to save money, particularly when you are able to get a new interest rate lower than the current interest rate of your current mortgage. A good credit score or credit-worthiness can work in your favor. When you apply to refinance your home mortgage, it will instigate a detailed investigation of your credit history. Applying for refinancing may lower your credit score (depending on the circumstances) but not by very much.
  2. Can you lower your interest rate? A lower interest rate means you will spend less money repaying the bank for your loan. Good credit standing is the greatest contributing factor in negotiating interest rates. So, it is advisable to improve your credit score before going for refinancing.
  3. Can you lower your mortgage payments? Preferably, you aim for paying less each month and you can do this by prolonging your loan term, which is not ideal. If you already are in 30-year loan term and want to take another 30-year mortgage period, you are going to end up paying a huge amount of interest. Although lowered monthly repayments may give you more space to manage your finances, it is not usually a good idea to get longer term loans. However, if paying less each month is your priority and you don’t care how many years you have to keep paying, you should choose that option.
  4. Reducing the length of your loan term. This is the kicker for most people who really want to save money. If you can get the lowest interest rate, you’ll be able to lessen your loan period and monthly repayments. Those savings really will add up. For instance, for a refinancing of a $250,000 30-year mortgage at 5% interest rate, you have to pay more than $230,000 simply in interest! But if you reduce the length of loan from 30 years to 25 years, you will be able to save at least $45,000.
  5. The last thing that people sometimes forget is managing the cost of the refinance along with various administrative charges. Your credit report and home must be analysed, assessed and inspected and you may have to pay an early payment penalty. Typically, the early prepayment penalty is only in the first two years of a mortgage; so review all the details of your current loan agreement before going for a refinance.


Whatever you do, make sure you can pay off the costs of the refinance within few months and try to keep the costs under one or two thousand dollars. Allowing additional costs to add up will make the loan harder to pay off.

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