In simple words, refinancing means when you take a new loan to pay off your current loan. In this context, when you use a new home loan to pay off your existing home loan, it is referred to as home loan refinancing. By refinancing your home loan, you are transferring your home loan to another bank. Usually, refinancing allows you to switch your current home loan package for a better package.
There are myriad reasons why you should consider refinancing your existing home loan. Some of the popular reasons include the following –
Apart from the aforementioned reasons, there are several considerations for you to give some thought before you decide to refinance.
3 years into your home loan is a good time to consider refinancing for several reasons –
There are certain costs and penalties to keep in mind when making your decision to refinance your home. Following are some of the common costs you will incur when you are switching home loans –
If you choose to refinance your home loan while your existing home loan is still in its lock in period, you will be liable to pay a redemption cost as a penalty. This cost will differ from bank to bank.
Some banks charge a prepayment penalty if you want to terminate your home loan prior to the expiration of the mutually agreed upon home loan date. This penalty will apply for anytime you want to terminate your home loan unlike the redemption cost during the lock – in period. A prepayment penalty will apply throughout the home loan tenure. You will need to read the terms and conditions surrounding the home loan package that was previously offered to you to know if your package has a prepayment penalty clause.
When you decide to refinance your home loan, you will need to hire a new lawyer to complete the process of refinancing. This cost will be incurred by you and not your bank. However, many banks offer a subsidy on the conveyance fee if you hire a lawyer associated with that bank.
When you choose to refinance your home loan to another bank, the bank will hire a valuer to assess the value of your home. This valuation cost will once again be paid by you and not the bank. Depending on the type of your property, the valuation cost will vary. Again, the bank in some cases may offer you a subsidy to offset this cost.
Therefore it is important to find out all the fees associated with your existing home loan as well as the offer for your new home loan before you make the decision. Your new home loan may offer you a better interest rate but simultaneously charge you with hidden fees and charges which might bring up the cost of your new home loan making the difference between the 2 loans, if any, negligible.
If after considering all the aforementioned factors, you have decided to refinance your home loan package, you have to make the final decision between two options –
This scenario can be a little tricky. Your existing bank will have your original documents which you will be required to submit to your new bank to approve your new home loan. You existing bank can choose to release these documents only when they receive the balance outstanding amount on your loan and your new bank may not give you the money from your new loan until they receive these documents. When such a situation presents itself, you can arrange for a meeting with the representatives with both the banks wherein your old bank can release your documents to your new bank and simultaneously, your new bank can settle your balance outstanding amount with a payment directly made to the representative of your old bank.
Refinance calculator is a great tool that can help you take the final call on which bank and home loan package you should choose to refinance your home loan. Every bank has a home loan calculator / refinance calculator that will give you the answers to all the important questions including how much money you will save on your monthly payments with the new home loan. It will also give you additional information such as which loan tenure will help you finish your loan faster and comparing fixed and variable rate packages offered. Banks may also have other calculators’ related calculators that can assist you in calculating your financial situation and what home loan package you can afford such as a TDSR Calculator, Affordability calculator and so on. These calculators will require you to input certain factors including the desired loan amount, loan repayment tenure, your income etc. and will generate your monthly payment amount, interest rate etc.
Following are the banks across the island that offer home loan refinancing –
These are the leading banks in Singapore that offer refinancing for your home loan. The list is not small, therefore you have a tough decision ahead of you in deciding which bank you must consider for refinancing your home loan. To do this you must conduct a research on these available options all at once and in the same place, meaning compare the refinancing packages offered by these banks and cross reference them against your financial status, requirements and expectations. Some of the key factors you must compare are the interest rates, type of home loan (fixed rate vs variable rate), loan tenure, hidden fees and charges, other penalties involved etc. To make these comparisons, you can use the home loan / refinancing calculators that do all the work for you limiting your role to simply making the final decision.
One last thing to remember is, although refinancing has a lot of advantages, be careful as to not continuously refinance your home loan every few years even if it can help maximize your savings because continuous refinancing for promotional rates at the end of the promotional rates on your existing property will have an adverse impact on your credit score. Your credit score will deteriorate because you are continuously applying for a new line of credit, thereby making it appear that you are unable to pay off your existing line of credit.