5 reasons why you should refinance your home loan
Last year saw an increased in number of people refinancing their home loans, presumably in the name of interest savings. However, recent political upset, most notably Trump presidency and Brexit, played a small part in triggering interests in refinancing matters.
With current world affairs mimicking the stuff of reality TV, anything can happen and there is no end to market fluctuations in sight. So, if you act fast and get chummy with your mortgage officer, you could capitalise on the supposed bearish times to cut corners in your home loan.
The Bear will show you exactly how.
Saving money has got to be every refinancer’s main interest. When you start crunching the numbers, you would realise how terrifying the interest repayment figures can get. Take UOB’s two-year-fixed-rate home loan package for instance. The total repayment over 25 years for an original loan amount of S$400,000 at 1.88% per annum is S$501,644. That is an additional S$101,644 in interest!
Each bank has a range of loan packages to cater to differing profiles and needs. But generally, there are two main types: fixed rate and variable rate. Of course, in light of discerning customers and their unique preferences, there are grey areas that combine the two. The consensus is that you should refinance to fixed rates in the face of increasing SIBOR rates. As the loan amount is huge, a seemingly insignificant 0.5% difference in rates can save you thousands of dollars. Over the duration of the loan, that would amount to tens of thousands of dollars.
If Donald Trump’s run in the Oval Office and the signed executive orders thus far have proven anything, his actions have yet to establish global confidence. This is bad news for the economy. It remains to be seen how long his anti-trade stance, travel ban and other asinine impulses are going to hold up but one thing is certain: the U.S Federal Reserve’s increasing of interest rates will affect bank rates, and the rates are expected to continue hiking. Before the SIBOR jumps, it might be prudent to refinance your loan to a fixed mortgage rate once you get the chance.
Switching to bank loans
HDB dwellers, heads up. Before we advise on the advantage of switching from a HDB concessionary loan to a bank loan, we must remind you of the housing loan regulation in which you are allowed to refinance to a bank loan from a HDB loan, but not vice versa. Now, HDB loans are fixed 0.1% above CPF interest rates at 2.6%. Although it provides a staunch defense against market fluctuations, the opportunity cost is the myriad of bank loan packages that offer much more attractive rates.
A quick home loan comparison here on GoBear reveals several banks offering fixed rate home loans at rates way below HDB’s. For instance, DBS bank is offering 1.80% per annum fixed over three years. If you found a really good deal with a bank and your calculations show that interest savings outweigh the cost of refinancing from a HDB loan, make the jump quickly.
Previously, the total debt servicing ratio (TDSR) prohibits anyone from paying off loans with more than 60% of income. After the flood of complaints on the difficulty in refinancing home loans, the TDSR has been lifted. All refinancing proceedings for owner-occupied properties are exempted from the TDSR ruling. In other words, you don’t have to rush to clean up other debts before you refinance.
That is the thing with MAS policy changes, though. They can be as fickle and unpredictable as the weather. With the TDSR ceiling removed, make a serious consideration to refinance while you still can.
Home loan promotions
Discounts and promotions are as good a reason as any to refinance. At HSBC, your home loan can be linked to your current account through its SmartMortgage program. The interest earned on your current account will offset the interest payable on the home loan. Moreover, in the spirit of Chinese New Year, you stand to receive up to S$1,280 worth of Isetan shopping vouchers depending on the loan amount. Application has to be done by 28 February 2017 and approved by HSBC by 17 March 2017.
For loan amount of S$800,000 and above, you get to level up to HSBC Premier status, which entitles you to discounts on home loan rates.
If not, applying for a Citibank home loan online entitles you to up to S$500 Tangs vouchers and legal subsidy of S$2,000.
Gif credit: giphy.com