How to Know When You Should Refinance Your Loan
When is it the right time to consider refinancing your mortgage loan? For many homeowners in Singapore, their housing loans take up a sizeable chunk off their monthly income. Many home buyers will, as a consequence, go for the most extended tenors and stretch it to the maximum 25 to 30 years.
For many of singapore’s housing loans, refinancing is an essential way to reorganise your finances. However, timing the move is crucial. So, how do you know when to refinance your loan? Below are three essential elements that will guide you.
When the Lock in Period for the loan Has Expired
Before you consider refinancing your home loan, check the existing loan package. Most lenders in Singapore have embedded a lock-in period in the loan contract. During the lock-in period, any attempt to refinance would attract hefty charges, penalties and withdrawal of any subsidies or discounts you may have received in your current home loan package.
Financial advisors will inform you to carefully weigh the costs and the savings when refinancing at this time. However, refinancing a home loan while the lock-in period is live often results in a loss for the homeowner.
Most banks set the lock-in period at between one to three years after the receipt of the loan – which is not such a long time to wait.
Refinancing a home loan is essentially taking your credit to another bank. But you shouldn’t do this unless the competing bank has a better deal on the table. Banks, like other business organisations, respond differently to market changes and have different strategies to attract and retain customers.
Although you may have taken up the loan with your current bank years ago, it could be profitable to refinance your mortgage loan. Most banks structure their loans such that they have low-interest rates during the earlier years. This is a way to attract customers to purchase their products. During the later years, the prices rise but the lock-in and legal clawback periods will have expired.
It is an excellent chance to think about refinancing your housing loan.
However, keeping track of the market movements is taxing and requires in-depth knowledge of the industry. You will need some help in this. Therefore, engage a mortgage broker, and they will help to keep you abreast of market changes.
When the Savings Outweigh the Costs
Banks don’t like losing customers. However, when the inevitable happens, a bank will ensure that the customer meets the exit costs. Refinancing your home loan will cost you, and it is senseless to refinance your mortgage loan at a loss.
Before you make the final decision on refinancing your housing loan, ensure you use a reliable loan calculator to double check the anticipated monthly repayments. Consider the entire payment, not just a section, and you will get the whole picture. After that, compare the outcome with the existing instalments including the cost of refinancing the home loan.
In your final analysis, your savings should exceed the cost of refinancing your housing loan.
Here’s the bottom-line: refinancing your home loan is about making savings. It is also about making the mortgage more compatible with your financial ability. Use the above indicators to know when you should refinance your home loan.