Once the lock-in period of the home loan is over, many homeowners in Singapore often toy with the idea of refinancing their housing loans, especially when there is a drop in interest rates. Deciding to refinance a mortgage loan in singapore may be a tempting option to enable you to meet your monthly cash flow demands. It is also a smart way of getting to pay your home loan sooner.
However, you should carefully consider such a move.
It is necessary for you to be aware of the long-term effects of refinancing a home loan in singapore. Here’s what could happen in the long term.
The Effect of SIBOR on Your Home Loan
Many banks in Singapore base their interest rates on the Singapore Interbank Offered Rate (SIBOR). SIBOR is the rate at which banks lend to one another (unsecured), and many banks apply it as a reference rate. Both the Singapore-US Dollar exchange rate and US Federal Funds Rate influence SIBOR.
Since December 2016, the Federal Open Market Committee of the US Federal Reserve has increased the US Federal funds rate. Its rise has not stopped, and pundits believe that it will continue beyond 2019.
As a result, if you refinance your mortgage to a variable rate pegged on the SIBOR, you could be paying more in the coming years.
You Can Manage Your Debts Better
Refinancing your mortgage loan in Singapore could help you access equity tied up in your home and use it to meet your short-term liquidity needs. You could pay off some short-term debts such as your credit card bill, or use the proceeds to undertake that long-overdue renovation that’ll boost the value of your home.
Many homeowners who refinance to clear their debts tend to go on spending sprees. If you have bad spending habits, you are discouraged from refinancing your loan.
Effect on Your Credit Score
You could refinance your home loan with the intent to shorten or stretch the loan repayment period and ease the pressure on your monthly bills. When you seek to refinance your housing loan in Singapore, prospective lenders will make several enquiries about your credit rating.
In conclusion, refinancing your housing loan in Singapore has long-term implications. It is essential you consider all of them and make the right choice.