Refinancing your home
What is home loan refinancing, and why should anyone do it? The answer is simple. The “great” deal you sealed a few years ago no longer looks the same. Your financial position and the market have changed since and would be wise to revisit it.
But there is an avalanche of questions that will follow. Is refinancing your home loan worth it? What options do I have? What are the refinancing rules? How can I land the best rates?
If you are overwhelmed by these kind of questions, here’s a fool-proof formula for refinancing your home loan.
Understand the Rules of Refinancing
Before you dive into refinancing, you should first understand what governs refinancing, and if you are eligible to refinance your home loan.
Some rules are specific to banks such as lock-in periods as well as regulations issued by the Monetary Authority of Singapore (MAS) such as a review of the Total Debt-Servicing Ratio (TDSR).
Talk to your banker and understand the regulations for loans before you resort to refinancing.
Review Your Total Debt Servicing Ratio (TDSR)
Your TDSR shows you the limit of how much you can spend on debt repayments from your gross monthly income. The rule of thumb is that you cannot allocate more than 60% of your total income to debt repayment.
Before you approach your bank about refinancing your home loan, you can extract the details of your credit status and the loans from the Credit Bureau Website. A simple TDSR calculator will help you know which loans to knock off and how to improve your TDSR.
Monitor the Interest Rates and Know the Review Dates
Singaporeans can access home loans packages at fixed or variable rates. The variable rate home loan packages are either board or floating rates. You probably have some knowledge of the types of loan rates from your original housing loan.
But don’t just brush it off. Banks benchmark their rates on the SIBOR or SOR, which are reviewed every month or quarter. Here’s the catch: banks often have a rule that you can only redeem a mortgage on the rate reset date, otherwise you will part with a fee. Thus, you should plan your move to execute the transfer on the next available date.
Also, you should keep a close watch on interest rates and make your move in good time. If interest rates look to be rising, weigh the opportunity cost of incurring refinancing charges such as reset date and lock-in breach against the cost of the anticipated higher interest rates.
Look Out for the Best Package.
Should you call other banks and check out their packages? Definitely yes! But before you settle on a home loan package, make sure that it is well-rounded product.
Don’t just go for the cheapest rates. Apart from comparing housing loan rates in singapore, look out for the subsidies, late payment penalties, prepayment fees, and the early redemption rules and fees. It’s unlikely that you’ll find a home loan package tailor-made for you, but you can go for a package that’s the best fit.