With a vast number of Singaporean banks offering an even larger number of refinancing deals for servicing your home loans, it can get very confusing for the financially oblivious to decide what to opt for because all competing deals are marketed to look very tempting. Thus, we need to know what suits your financial status and home loan package instead of simply opting for a deal that appears to save the most amount of money. The short term savings might appear to be a big amount in comparison to other deals, but there are deals that might have a greater fortune waiting for us in the long run.
It is extremely important to gather detailed information before we make a decision.
For your consideration, here are a few important ways to determine the best refinancing option for your home loan:
Access to multiple banks
We can get in touch with multiple banks directly. The advantage with us brokers is that we have a wide access to different home loan options and are in the inside circle for promotional deals.
Find out the fees
We need to know about the current industry fees and compare it to the one included in the deal we are deciding upon. In refinancing, the typical fees are valuation and conveyancing. There are mortgages that come with subsidies that help you cover the fees, partially or 100%.
If you are within the lock in period of current mortgage, penalty could be imposed if you refinance. There could also be clawback of subsidies if the existing home loan had not serve a certain period of time.
You should ideally allocate at least $2000 – $3000 to handle these fees, which can cover all legal costs and repay miscellaneous subsidies given to you.
Investigate about any hidden costs involved
We are all aware of the extremely misleading term called the ‘terms and conditions’. All of us have been a victim of this term at some point or the other as it usually pops up very randomly when we seem to know everything. So, when it comes to banks, we should not just make a decision depending solely on the monthly payment terms as their very aim is to lure in customers. We need to know things like the interest rate being offered, if it is fixed or variable, penalties if you choose to make additional repayment and the lock in period
Turning down easy money
At first glance, the idea seems very stupid, but can prove to be really beneficial. Yes, higher rates of savings are very tempting but we should not jump at such offers too soon. At times, refinancing too early may lead us to saving lesser money than we could have saved. The total amount saved by you due to your new loan package should ideally exceed the cost of refinancing, within a suggested period of 12 months.
For instance, if refinancing helps you save about $300 per month with the new loan, but requires an additional $2000 in fees to process the deal, it will technically take you $2000 divided by $300 = 7 months to breakeven before you can expect to gain some savings.
Stretching the tenure
Tenure is the other important factor that can improve monthly cashflow. If your financial situation had changed, e.g. wife decides to be a stay-at-home mother, you can consider refinancing and stretching the tenure to the maximum allowed. Singapore regulations allow you to stretch the tenure for your home to a maximum of 35 years or age 75, whichever is lower.
Weighing the costs
Analyzing a number of factors, including the size of the mortgage, the length of time we will be staying in the home, and the volatility of interest rates, research has shown that the optimal time to refinance for those who intend to stay in their homes indefinitely is when rates have fallen by 0.5% from the existing mortgage. For those planning to move in the near future, you should consider the lock in clause and subsidy clawback period before it makes sense to refinance.
These are a few ways by which we can make better decisions while refinancing our home loans. In the end, one might hear or read different things but a good decision is a well-informed one.
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