HOW TO SAVE MONEY ON HOME LOAN?
Often loans are looked upon as big financial commitments in life especially home loans. Did you know that you could save money on home loan as well? What???
Yes! People find it difficult to pay off loans. However, with us, you can save money on your home loans. Surprised?
Experts at HLW are here to help you get your best deal on home loans so that you can save your money to maximum advantage.
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Compare Before You Choose
This is an extremely important step when going for a home loan. To some, the comparison might look just simple as they think that they have to just compare the interest rates of different banks. Did you know that some interest rates are always changing? If you focus on just getting the lowest rate loan possible, you need to stop right now and read this.
The rate loans fall into different categories which include floating-rate loans and fixed-rate loans. The floating-rate loan interest can change according to market interest rates. Their interest rates are lower than fixed-rate loans but their interest rates can rise significantly with market interest rates. However, fixed-rate loans have a locked-in period which can range from 2 to 3 years. The interest of fixed-rate loans does not change with the fluctuating market interest rates.
Refinancing / Repricing
Once you have chosen the type of rate loan, your work just doesn’t end there. Another significant economic way to save money on your home loan is to refinance it. Refinancing helps you save more money on your home loans provided you do it properly.
What is Refinancing?
Refinancing refers to switching your loan package to a different bank. With refinancing you can save on interest rates. Even if there is a difference of 0.25-0.5% interest rate, it can lead to huge savings on your home loans.
Are Refinancing and Repricing the same terms?
No! Repricing refers to conversion that is switching to a different loan package within the same bank.
As per research, every 3 years, people in Singapore get their home loan refinanced.
Next time when you apply for a home loan, look out for the provisions provided by your bank. Is your bank providing flexibility for refinancing on your home loan?
What is the advantage of Refinancing?
The interest rates are usually revised to a higher value with time. It means that you will have to pay more interest as per the revised interest rates. If you refinance your home loan, you get to switch on lower interest rates.
There are few banks that provide free conversion for one time. Make sure you do proper research. Next time when you sign up for your home loan, don’t forget to enquire about this important point.
When should you Refinance your loan?
You can refinance your loan at any time. However, it is advised to wait till the time your lock-in period/clause is over. The reason behind this is that if you try to refinance your loan during the lock-in period, you might be charged a penalty fee by the bank. This might result in a loss rather than gaining profit. Make sure you check the validity of your refinancing contracts. Usually, a 3 months’ notice is required to be given to the bank before you can refinance your loan.
Know about Interest-Offset Accounts
Have you ever heard of an interest-offset account? It is a repayment account that is associated with your home loan. This account acts similar to your savings account. The advantage of this account is that it allows you to earn a higher interest rate that matches the rate of your home loan. If you have spare cash you can deposit it in this account and get maximum advantage on the interest rate. The best part about this account is that you can withdraw funds from this account at any time when required.
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Please note that the terms and conditions for such accounts can vary from bank to bank. Please read the instructions carefully. Do not forget to read the fine prints as well!
Choosing a home loan with lower rest
Did you know that most of the banks follow a monthly rest on home loans in Singapore? However, few do so on a daily and annual basis. Let’s understand the term ‘rest’. The term rest here refers to the compounding period in which the interest on the amount of an outstanding loan is calculated. In simple terms, the more frequently your loan is calculated, the lower the interest payments will be.
How does this work? When your loan is calculated frequently, it takes into consideration the outstanding loan amount as well when you are paying down the loan over time. Some of you might think that the saved amount is small but even this small amount can make a huge difference at the time of prepayment.
SIBOR
Last but not the least, don’t forget to check SIBOR. SIBOR refers to the Singapore Interbank Offered Rate. It shows reference rate daily based upon the interest rates which are offered by the bank to lend unsecured funds to other banks in the Singapore wholesale money market or interbank market. It is important to check SIBOR because the prices of home loans of banks are based on the SIBOR rate. Thus, it will provide you knowledge on the ongoing interest rates.
Takeaway
Taking a home loan doesn’t mean that you are just stuck with it to make payments. You can save a huge amount on your home loans provided you make the right choice. Before you start to choose which home loan you want, it is important that you make the proper research and understand the basic terms. Lower interest rates might seem alluring to you but you need to be careful whether they are floating or fixed interest rates.
Options like refinancing can help you shift to lower interest rates with time. However, you need to understand the difference between refinancing and repricing. Also, make sure you know the terms and conditions of refinancing of your bank as refinancing in the lock-in period may get you penalized by the bank.
If you have a spare amount of money, look for an interest-offset account that is associated with your home loan. Also, choose a home loan with lower rest. It’s time for you to stop worrying about the debt and start making a profit on your home loans with the right guidance from our experts.
