Ask these 5 questions before you Refinance your Home Loan

Home Loans | Loans

Buying a home is what everybody dreams of. If you are looking to refinance your home loan, then read on to know more. Do you think you are a loyal customer of your bank? If the answer is yes, then you might be in for some bad news. Loyalty won’t get you good home loan deals in Singapore at least not in the case of refinancing loans. Typically banks in Singapore give you a lucrative interest rate on home loans for the first two or three years. After this period, the rate of interest on loan packages starts to shoot up, which indicates that it’s time you look for refinancing your home loan. But before you jump to it, ask yourself these important questions.

Will you lose or save money? 

Will the cost of refinancing your home loan prove to be damaging for your savings? Most commonly in Singapore people focus on getting lower interest rates when they hunt for refinancing a loan. The lower interest rate could benefit them by regaining some of the lost money. When you look for options to refinance loans, calculate all extra costs that may come along with it like cancellation charges, etc. The key to refinancing loan is to find a breakeven point for yourself where you have the buffer to recoup the refinancing costs from your new loan. Calculate how much you will pay at the end of the old home loan as compared to the new one and there you have your figures.

Cheaper just to reprice your home loan?

Refinancing means switching banks altogether whereas repricing indicates swapping to new home loan package. Repricing your loan may prove to be cheaper in comparison to a new home loan package.  Sometimes, the interest rate in case of repricing loan can be slightly higher than refinancing a loan. However, by repricing your home loan you can avoid refinancing costs. Overall choosing a repricing loan package could save you more money than a refinancing home loan package.

How long you wish to keep the House?

Before you decide on refinancing your home loan, consider how long you want to keep the property. If you wish to stay in a house for a long time, which is most common then it would be a bad idea to refinance your loan. On the other hand, if you have plans to sell the house than you can go for refinancing your loan as in the long run your house will be sold.

Will you be charged a penalty by the bank?

 

If you have a home loan package where you are running on long-term fixed rates than it may not be worth to refinance your loan. Home loan packages with fixed rates for long term like 5-6 years automatically means that you are locked-in for that period. If you are not sure of the lock-in period, you can get in touch with your bank & find out. Refinancing your loan during the lock-in period could bring in more trouble. Banks can levy penalty charges on the outstanding loan amount and chances are high that you could lose a huge chunk of money. So plan carefully if you come across a cheaper home loan package than yours!

Ready to pay the refinancing costs?

Typically refinancing costs in Singapore is around S$1,500 to S$3,000. Of course, it depends on various factors like legal fees, prepayment charges, and cancellation charges, etc. depending on the cancellation fees, and legal fees of your package. Refinancing a home loan means to start the procedure all over again from scratch by filling in application forms. However, because of the cooling measure, it is entirely possible that you may have qualified for a home loan before but now you don’t qualify for it. So, keep in mind that the refinancing process is not easy. Ensure you talk to your bank and learn about the cooling measures and other regulations if any.

Lastly, to refinance your home loan, you’ll have to clear your outstanding loans. This will enable you to meet debt servicing ratios. Also, this means you have to do a ton of paperwork too. Research well to speed up the procedure and make informed financial decisions.

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