When you replace an existing loan with a new one from a different lender, it’s called refinancing. It’s usually done when a lender is offering you better terms in comparison to your existing lender. The most common reason for refinancing is to take advantage of lower interest rates. Switching to a loan with lower interest rate can help you save a lot of money, especially if it’s a long-term loan. Reduced interest charges also mean lower monthly payments.
When you refinance your home loan, it’s called remortgaging. As with refinancing, remortgaging is also usually aimed at taking advantage of better terms that might be available to you from the existing lender or from a different lender. It’s an effective way of reducing the interest charges on your mortgage loan as well as changing the duration of the loan to match your requirements and budget. You can use remortgage your HDB property loan, residential loan, commercial loan, and overseas property loan.
When you renew your loan terms with your existing bank/financial institution, it’s called repricing. This is usually done after your lock-in period is over and your lender is offering you better terms. It’s simpler compared to refinancing where you switch to another lender and have to go through all the paperwork before the renewed loan comes into effect. When you reprice your loan, changes come into effect quickly and smoothly.
Things to Consider Before Refinancing, Remortgaging, or Repricing
Your financial objectives: Before you refinance or remortgage your loan, you must consider your financial objectives. If your objective is to reduce your interest costs, you might want to consider switching to a lender who is offering a loan with lower interest rates.
Lock-in period: Lock-in period is when a loan cannot be refinanced or re-negotiatied. Most loans comes with lock-in period. This period may vary from loan to loan. Refinancing or remortgaging your loan before the lock-in period ends will lead to penalties levied by your bank.
Interest rates: Find out if the interest you are paying on your loan is higher or lower than the current interest rate in the market. In the next step, analyse the trend and see if the rates are going up or down. If you think they are going down already, you might want to consider refinancing, remortgaging, or repricing to take advantage of the current situation. If you think rates will go down after a few years, it’s best to wait till they actually start moving south.
Savings: Everything ultimately comes down to the savings. So, before you make a choice, find out how much you are actually going to save with refinancing or a new mortgage loan. Only if your potential savings are more than the costs associated with refinancing or remortgaging or repricing, you should consider these options.
Credit score: You must also consider your credit score before renewing your loan. If you don’t have a good score, you might not be able to find the best rates on these loan refinancing options.