A "low interest" loan shouldn't mean you have very little interest in paying it back!

    Home Loan Refinancing

    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.

    Home Loan Refinancing

    When should you consider refinancing your home loan?

    There are myriad reasons why you should consider refinancing your existing home loan. Some of the popular reasons include the following –

    • When you are paying a higher rate of interest compared to what is being offered currently in the market. When your interest rate is no longer competitive, it is good reason to consider refinancing your home loan to decrease your interest payments.
    • When you want to watch to change the type of package. If you want to switch from a variable rate package to a fixed rate package or vice – versa, refinancing is the best way to switch to a package of your choice.
    • When you want to draw home equity on your loan to make other payments or investments. Whether you want to renovate your home, pay for your child’s education or make another investment, you can refinance your home loan to on that offers home equity on your loan.
    • When there is drastic change in your financial status, you should definitely consider refinancing your home loan. If you are no longer in a position to make payments on your home loan at the current rates, you should look for a lower rate package with fixed payments and no / minimal late payment fee in case you miss some of your payments by the due date, so that you can save enough to sustain your finances.

    Apart from the aforementioned reasons, there are several considerations for you to give some thought before you decide to refinance.

    • First and foremost, you should assess your current financial situation and consider your financial situation for the foreseeable future (approximately the next 2 to 5 years).
    • Secondly, you must check the terms and conditions of your existing home loan to see if there is a lock in period and if your loan is still on that period. A lock – in period implies that you cannot terminate the loan or make prepayment on your loan during the initial years of your home loan. This period is similar to a contract period where you cannot get out of your loan until the lock – in period expires. If you try to get out of your home loan during this period, you may incur a high redemption cost.
    • Next, you will need to consider if your current home loan has a prepayment penalty and how much extra you will need to pay to terminate your loan early. If the prepayment penalty is high, then it will not make sense for you to switch home loans for the simple reason that it will not help your savings in any way. What you might save on better rates from a new home package is what you will be paying extra or even more as your prepayment penalty to terminate your home loan early at your existing loan package. This will only lead to a waste of time, effort and money if you transfer your home loan without reading the prepayment clause on your existing home loan.
    • Also, an assessment of any change in your financial status that you have already planned for such as a new child, changing your job or even buying / selling of property can affect your ability to make future payments on your new home loan package.

    When should you consider refinancing your home loan

    3 years into your home loan is a good time to consider refinancing for several reasons –

    • Usually, home loan packages initially provide promotional rates for the initial years of the loan. The interest rates during this period is significantly lower than what you will incur after the elapse of this promotional period. After the elapse of the promotional period, refinancing can prove to be advantageous when you want to retain lower rates of interest by switching to a lower rate package.
    • Additionally, many home loan packages provide for a fixed rate of interest during the promotional period before switching to a variable rate after the initial years of your home loan. You can refinance your home loan to change the type of your loan package (fixed rate / variable rate package).
    • Another reason to refinance your home loan after a few years into your home loan is that the lock – in period would have elapsed. Many home loans offered by banks in Singapore have a lock – in period of approximately 2 to 3 years during which you cannot terminate your home loan under any circumstance. However, once this period has elapsed, you can refinance your home loan for a better package. You can start looking for a better home loan package 3 to 4 months before your lock – in period elapses so you are prepared to switch immediately without wasting any time or money in continuing to make higher payments.
    • Factors affecting the market situation are constantly changing. Therefore, the interest rates change every few years. A few years into your home loan will be a good time for you to compare your interest rate to the rates being offered in the market. If the interest rates are highly favourable and your rates are no longer competitive, it will be a good time for you to refinance your home loan to once again get competitive rates on your home loan.

    What are the cost considerations to keep in mind when considering refinancing

    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 –

    • Redemption Cost
    • 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.

    • Prepayment Penalty
    • 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.

    • Conveyance Fee
    • 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.

    • Valuation Fee
    • 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.

    How to make the final decision of refinancing your home loan package

    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 –

    • Do you want to refinance your home loan package with your existing bank? More often than not, banks will make an offer for a better loan package when you express your desire to refinance so that they don’t lose you as their customer. If the offer made by your existing bank meets your expectations and is able to match the offer any other bank is providing you, then it makes sense to refinance your home loan with the same bank because it avoids additional paperwork, valuation, time and money. You refinancing will be hassle free when you choose to refinance within the same bank.
    • Do you still want to refinance your home loan package with another bank? If the offer made by your existing does not match your expectation or if the offer made by another bank is better, then you can make the decision to end your relationship with your existing bank and move your business to another bank.

    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 Calculators

    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.

    Which banks in Singapore offer Home Loan Refinancing

    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.

    This Page is BLOCKED as it is using Iframes.