Thinking of refinancing and not sure how to start? Here’s a step by step guide to evaluate your current mortgage.
Check your terms
What interest rates are you paying for your mortgage? How much is your monthly instalment? If your interest rate is a floating rate, you may want to consider switching your interest rates to one that is pegged to market rate like SIBOR for greater transparency.
Are you out of the prepayment or redemption penalty period? Is there a clawback for legal subsidy? If you have been servicing your loan for the last 3 years, chances are you are out of the penalty period.
Compare your interest
For example, a S$800,000 mortgage with a 25 years tenure at 2.50% p.a has a monthly instalment of S$3,589. The same mortgage if refinance to a rate of 1.50% p.a will reduce your monthly instalment to S$3,199. That’s a savings of S$390 per month or S$4,680 for the first year.
To find out your savings, you can use the calculators available at DBS website or www.moneyiq.sg
Think about how long you expect to stay in your home
Before you decide to refinance, it’s good to pause and think about your long term plans. If you plan to sell your property in the next 2 years, you may want to refinance to a no lock in package. This means there will not be any penalty when you redeem your mortgage.
Remember you may need to pay back the legal subsidy, as such you may not enjoy the savings you could potentially get from refinancing. So don’t assume that refinancing will automatically save you money.
Cost of refinance
For refinancing case, you will need to engage a conveyancing lawyer. Usually the new lender (bank) will provide a legal subsidy. Depending on the package, legal subsidy ranges from 0.4-0.5% of your loan and capped at S$2400-S$2500. For most cases, this amount is sufficient to cover your legal fees. You can also use your CPF or cash to pay the legal fee.
Timeline and procedures
You can easily evaluate your mortgage using the steps above. As long as the savings makes sense, you should refinance. Remember some banks may offer packages that keep to pay off your penalties, so it pays to look around.
Another tip, if your mortgage has a 3 years penalty clause, you can start to research 4 months before that deadline. You can sign up for a free reminder service at www.moneyiq.sg
The procedure is simple. You can submit your request to the various banks personally or thru moneyiq.sg. The banker will contact you directly to explain the package in details.
For documentation, you will need to prepare your last 6 months mortgage statements, income documents and copies of your NRIC.