Are you thinking of refinancing your home loan, but have no idea how to go about it? If you have sufficient equity in your home and your documents are in order, then finding a lender will not be a challenge. Here is how it is done.
Step 1: Find out whether you are eligible or not
The process of refinancing begins with finding out whether you are eligible for refinancing or not. You have to look for two things: the lock-in period and interest review date.
Lock-in period is the period within which you cannot move your loan elsewhere. If you do, then you will have to pay a fine amounting to 1.5% – 2% of the outstanding loan amount. The lock-in period usually lasts for the first 2 – 3 years.
Interest rates of SIBOR or SOR are reviewed every month or every quarter. If your loan’s interest rate is pegged to SIBOR or SOR, some lenders will tell you to redeem your loan on the day the rates are going to reset.
Step 2: Inform the current mortgage lender
Banks require borrowers to give them a 3-months’ notice before they can quit. So the right time to move is three months before the new rates begin. Make sure that your lock-in period is over and the interest review date is not just around the corner. Inform your bank of your intention to refinance your loan – in writing if necessary.
Step 3: Get your documents ready
Mortgage lenders will not refinance your loan without the proper documents. So, get all the necessary documents ready. You will need the following: your valid SingPass, last 3 months’ pay slip, and your CPF contribution history for the last 15 months.
Step 4: Find a suitable refinance package
There are lots of mortgage lenders in Singapore who will be willing to refinance your housing loan but you have to be very choosy. Ask yourself what you want to achieve with a refinance. Is it to save money on interest? Is it to become debt-free faster? Look for a package that meets your specific requirements.
Step 5: Prepare your loan application
Once you have selected a refinance package, prepare your loan application. Make sure to include all the required information and that they are accurate and do not contradict any of your documents. Even a small mistake can be viewed with suspicion by the loan reviewer. Thus, it is important to check several times to ensure that there are no mistakes and discrepancies.
Step 6: Review and approval by the lender
Your loan application and valuation will be reviewed by the lender. He will look at everything to make sure that you have the means to repay your loan. He may ask you for additional documentation and information. Once he is satisfied, he will issue an approval letter along with conditions.
Step 7: Sign loan document and close
Make sure to sign the loan agreement before Letter of Offer expires. Make sure to read everything carefully and sign on every page. After the lender accepted the Letter of Offer, the lender will release the funds to pay off your existing loan. Now you are officially into a new loan.
If you are planning to refinance your home loan, make sure to compare the housing loan refinancing schemes offered by different lenders in Singapore before choosing one.