Get the best home loan refinance packages by talking to our experts.
Home loan refinancing is when you take out a new home loan with a new lender, or renegotiate the rates with your current lender (called repricing in this instance). The point of doing so is almost always to secure a lower rate of interest that will save you money on your monthly repayments and possibly reduce the life of your loan.
Whether you’ve a fixed interest rate or a floating interest rate, there’s always a chance to get a better interest rate by refinancing your mortgage. Better if you do that before the next cycle of payments. That means you’ll also enjoy a lower monthly installment payment.
Usually, the lock-in period ends in a few years. And also, you need to give at least 3-months notice before refinancing. So plan at least 4 months before the new interest rate takes over after the lock-in period. You’ll save loads of money.
If your existing loan tenure is less than the maximum loan tenure on offer, you can go for a loan tenure extension using the home loan refinance option. Whether it’s an HDB or a private property, you can extend your loan period to up to 35 years or till the age of 75.
All you need to do is do an interest rate risk analysis. Here’s how it works
Suppose, John took out a mortgage of a $1 million loan for 25 years. The interest rate he is getting is 1.4% per annum and he is paying $3,953 monthly. If interest rates rise to 1.5% per annum (a 0.1% hike), his monthly payments will increase by $47 a month or $564 a year.
Although he pays an extra $564 that year, John is actually paying $1,000 more in total interest that year. This is because as interest rates rise, a lesser proportion of his monthly instalment goes towards principal repayment and he will end up with a higher outstanding loan amount at the end of the year.
For every $1 million loan, a 0.1% increase in interest means an extra $1,000 a year in interest payments. Assuming interest rates rise by 1%, you are looking at additional $10,000 in interest paid yearly for every $1 million of loan. If your loan is $2 million, then every 0.1% increase means $1,000 X 2 = $2,000 increase in yearly interest.
*Above calculations are very close estimates.
For a $1 million loan, a 1% increase in interest rates is equivalent to additional $500 monthly repayment. Based on the government view of the average interest rate at 3.5%, the instalments will be expected to increase by $12,000 yearly for every $1 million (2% increase X $500)*.
*Above calculations are very close estimates.
Call up your bank, or dig out your current mortgage contract and note down these details. Are you still in the lock-in period? Any clawbacks, such as legal, fire insurance, or valuation?
Find out what interest rates you are paying now and going forth. Also find out what your bank can offer you if you reprice with them. (Reprice = refinance within your existing bank. Usually a $500 – $800 fee.) Then compare to the best home loan interest rates in today’s market, which may vary based on certain conditions and validity. Or you can talk to a home loan consultant.
Reach out to us for more details on the current best interest rates and how to refinance your home loan in Singapore. We can also provide ideas to obtain cheap financing using your property as collateral to place into investments like stocks, overseas property, or purchasing a car.
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A lock-in period refers to the minimum number of years that you are required to stay with the bank for a particular package. If you decide to refinance, repay partially, or repay fully, there is likely to be a penalty imposed.
Experts suggest that you should refinance your home loan every 2 to 3 years. And that’s because you will save a lot of money in the process by avoiding increased interest rates after the lock-in period. Even with floating interest-rate chances are your interest rates have increased in 2-3 years and you’re paying more. So it’s always advisable to refinance your home loan if it’s saving you money.
You pay two types of cost: legal fee (to the law firm) and valuation fee (to the bank). In many cases, if your remaining loan is $300K or above, banks usually subsidise the legal and a part of valuation fee. This means that the total cost usually is minimal and definitely cheaper than repricing.
Repricing refers to changing to a different interest rate package within the same bank. For repricing, there is usually a repricing fee of between $800 and $1000. Also for existing customers changing to another package, the package offered by the current bank will usually be worse off or at best the same as what they offer for new to bank customers.
Refinancing is to change to a different bank and to take up a new housing loan package from them. Banks will usually attract new customers by offering subsidies to keep the cost low for switching and their interest rate packages are usually more attractive. Therefore as long as you are eligible for the subsidies, it definitely is worthwhile to refinance.