Imagine this: You’ve finally gotten your dream home. Maybe a landed property with a private pool. Maybe a 500 sq foot condo apartment that has a gym that you hardly go to (I don’t blame you!). Or maybe you’re happy staying at your new 5-room resale flat that you share with your partner because BTOs are so “meh”.
Then, out of nowhere, that affordable home loan instalment that you took up 3-years ago fluctuated without warning! Your dream started to become a walking nightmare!
Do you know, however, that such a drastic change of cost can easily be managed through refinancing? It’s a common way for home owners to keep their mortgage low throughout their tenure.
In this article, we explore this possibility as well as seven other things that you need to know about refinancing:
1. Refinancing Helps Keep Interests Rates Low
The purpose of refinancing is to help to keep interest rates of your loan steady throughout the entire tenure. This is done by reassigning a new home mortgage package after the period of mortgage contract lockdown is over. And if you can cut down interest rates, you may be able to save thousands of dollars over the coming years.
2. Refinancing Can Be Done Every 2-3 Years
One of the common misconception of bank loans is that once you are signed up to the bank, you will be stuck with whatever interest rate that the bank is charging you.
The truth is you are only “stuck” during the first few years of your lock-in period. Most packages, both old and new, often have lock-in periods that typically last for the first 2 to 3 years. As mentioned in the first point, you can thereafter take up a new loan package with the bank that offers a lower rate. You can even do so with another bank altogether. As long as they are offering a far more competitive rate, you’re good to go!
3. You Can Take Up Refinance Even If You’re On HDB Loan
“From HDB Loan to Bank Mortgage” seems to be the hot topic for many HDB home owners as they look into reducing costs for their home ownership. For the past decade, the costs of borrowing from banks have been reduced all round. Hence, bank mortgage have been a very attractive alternative for even HDB flat owners to consider refinancing.
However, there are a few caveats to consider such as the initial deposit costs, stricter regulations by MAS and a more volatile rate fluctuations. HDB vs Bank Mortgage is a subject worthy of an entire article by itself!
4. Certain Packages Offer Cash Rebates
As a way to entice customers, some refinancing packages offer rebates or subsidies.
These rebates can be as much as $2,000, depending on the bank and the loan amount you are taking up. They are applied specifically to legal costs incurred during refinancing. It does help quite a fair bit to cut down your costs.
5. “Cheapest” Rates May Not Necessarily Be The Best
It’s natural to instinctively want the best price for everything we buy. But just like how we’re sometimes willing to pay a premium price for good quality items over a cheaper one, the same logic also applies to refinance packages.
Cheap is not necessarily better. There are conditions for getting the cheapest package available. Sometimes, you are locked in for a longer time period. Other times, you are looking at a significant jump of costs after the lock-in period. There are so many factors to consider when selecting the right package for you. That is why it is best for you to get advice from a mortgage specialist.
6. Refinancing Can Improve Your Credit Score
Hoping to move from your HDB flat to private housing in the future? If you have never taken up a loan before this, refinancing could be a great way to build your credit score and history.
Generally, banks would like to see some indications to show that you are able to service a bank loan or credit punctually and responsibly. One of the main ways is to study your credit history. A person with a good credit history will most likely find themselves attaining better credit cards than someone who has no credit history i.e. someone who has never borrowed from a bank before.
The same then can be said for those looking to take up a bank mortgage for the first time. Although the chances of your application being turned down are much less (home mortgages are secured loans as opposed to unsecured loans like credit cards), having a good credit score increases our approval chances and the attractiveness of the packages you are able to pick.
7. Don’t Wait Till Last Minute to Refinance
One important thing you need to understand about refinancing: the process takes time. There are many packages to look at that offer different rates, with different pros and cons. Depending on your financial profile, some packages may be more suitable for you as opposed to others.
However, to find the best fit for you, mortgage advisors need to analyse the information gathered and pinpoint the most suited offering for you. After that, the bank will need time to process your application before the refinancing officially occurs.
This is why we recommend looking into refinancing as early as 6 months before your current fixed-rate contract ends. This will allow a smooth processing buffer that will minimise your costs as much as possible.
8. We Handle Your Refinancing For Free
Here’s the final fact that you need to know about refinancing: Dayn Advisory handles your refinancing needs at no cost – yep, FREE.
We do not take additional commissions from you on our services. Your only obligation is with the bank that you are refinancing with. Our cost will be covered by the bank and is of minimum value.
What’s more, we handle the paperwork and legwork needed to get your refinancing approved by the bank. There is no need for you to face long queues, complicated paperwork and complex terms while talking to bankers.
The banks are constantly changing their rates for mortgage and refinancing packages. The best way to keep up is to speak with us about what is available on offer. We will then look into your financial capacities to find the best rates possible. Drop us a message and speak to us today!
About The Author
Shamir has more than 8 years of banking experience across various areas in Retail, Corporate and Private banking (including Islamic finance) for one of the largest banks in Southeast Asia. In Corporate Banking, he was involved in structuring loan transactions for real estate developers and REITs. He also worked with private bankers to provide credit solutions to their high net worth clients.