When it comes to housing loans, many people don’t refinance. A significant number are unaware they have the alternative of switching their loan to different financier; others are simply indifferent. They stick with their very first lender and the “reward” for such loyalty tends to be higher interest rates. Due to the order of magnitude of mortgages and the tenure that the loan is amortized over, the interest we are talking about here can well stretch from thousands to 100,000’s of dollars. Take a look at the following factors to see whether it’s time for you to consider refinancing.

Current Mortgage Interest Rate

It is definitely a good indication for you to research refinancing when your current interest rate is higher than available home loan packages on the market. A first step to take is to go back to your current bank or financial institution and ask them to revise your package, otherwise known as repricing. If your lender comes back with an offer, it will commonly be better than your current one. You can then compare this offer with offers from other lenders to see whether you should switch or stay put.

Lock-in and Clawback Periods

When you take up a mortgage, there may be a lock-in period where your mortgage lender will charge you a penalisation fee, commonly a percentage of your outstanding loan amount, if you were to fully repay your loan. Almost all housing loans also come with a clawback period where the lender will claim back “freebies”, such as legal expenses, that they “gave” you when you take up your mortgage (Note: lock-in period is separate from clawback period). It may not be commendable for you to refinance due to such costs.

Loan Quantum

The larger your home loan amount, the larger your savings for the same reduction in interest rates. For example, 1% on a loan of S$100,000 is much less than 1% on a loan of S$500,000. However, fixed cost to refinancing, which comprises mainly of legal fees, do not vary much with loan quantum. The difference between your current and refinancing interest rates, therefore, has to be bigger for a relatively smaller loan as fixed cost eats into a more fundamental share of your interest rate savings.

Perceived Interest Rate Movements

Your view on how interest rates is moving can be a factor when considering whether you should refinance. If you are currently on a fixed rate package and think interest rates are dropping, you may want to refinance to a floating rate package. Conversely, if you are on floating rates and believe interest rates are skyrocketing, shifting to fixed rates may be a solid choice.

Personal Financial Appraisal

If there is a change in your financial state, you may want to alter your package particulars via refinancing. For instance, you are starting your own company and do not want unpredictability in other areas. Give some consideration to taking up a fixed rate package. Maybe you want cash to invest in another place. Consider raising your loan quantum. Or your monthly income has increased and you want to reduce interest loan payments. Contemplate reducing your loan tenure.

If looking through this article is giving your a headache or you simply want to save yourself the trouble, contact us for a non-obligatory mortgage consultation. Our professional advisors not only frees up your time but also do not charge any fees to help you get the best deal. Refinancing does not have to be a boring process.

Learn more about a premier Housing Loan advisory firm, providing Housing Loans with free mortgage broking. You are welcome to reprint this article – but get your own unique content version here.

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