Refinancing is the decision to re-evaluate your options – to switch your home loan package to one that offers a lower interest rate by moving to a different bank altogether. Refinancing grants a terrific opportunity to reap substantial savings as you can decrease your monthly home loan repayments or lower your interest payments. You can also stretch your loan tenure or change the type of mortgage rates you wish to take up. The options are aplenty. Reviewing and refinancing your home loan periodically is a smart move to enjoy good interest savings.
Enquire Now| Bank A | Bank B | |
|---|---|---|
| Interest Rate | 2.30% | 1.30% |
| Monthly Home Loan Repayment | $4,386 | $3,906 |
| Total Interest Incurred Over 3 years | $65,952.34 | $37,049.61 |
Here’s a simple example. Imagine, your outstanding loan amount is SGD 1,000,000 and your remaining loan tenure is 25 years. Your current bank (Bank A) is offering you an interest rate of 2.30%, but another bank (Bank B) is having a special promotion that offers borrowers an interest rate of 1.30%. By refinancing from Bank A to Bank B, you get to save: SGD 28,902.73
Apart from the savings reaped, certain costs are included too. For the most part, you have to pay legal and valuation fees. The good news is you may not have to pay these charges if you have a considerable loan size and the bank that is trying to win you over is willing to cover these costs (up to a certain amount) to make their package slightly more attractive.
Nonetheless, even though we kiasu Singaporeans take a fancy to gifts and discounts, having the banks fork out money for you is not an offer that comes with no strings attached. Typically, banks will set a ‘clawback period’ – which means that your home loan package has to stay with that particular bank for a stipulated period before you can refinance and switch to another bank. Otherwise, a penalty fee will be imposed.
The answer to this question is after the lock-in period. This is because the lock-in period is a specific period that you have committed to the bank for your mortgage loan. If you were to refinance during this lock-in period, a penalty fee (usually 1.5% of your outstanding loan amount) is chargeable. Thus, it is advisable to refinance only after the lock-in period.
Overall, refinancing is an important financial management tool that every homeowner should utilise. Keep watch of the fluctuating home loan interest rates in Singapore and when the time comes, evaluate your options to pay off your loan faster or lower your interest payments.
Unsure of your options? Look for our team of Mortgage Specialists to assist you.