Should you Refinance your Housing Loan?



Interest rates for housing loan has dropped to as low as 1.29%

With the interest rates at the lowest in recent time, it is the best time to relook at your housing loan

For many, taking a housing loan would mean finding a bank that provides you with good rates and parking it there For HDB owners, some would just take the loans with HDB at 2.6% and forget about it. For Private Home Owners, some are not aware that they can refinance their loans with their own banks or with other banks if the interest is to their favour. It may not be surprising to see some owners still footing out 3-4% interest.

Given today's low-interest-rate environment, those with historically high-interest loans should relook at refinancing.  Rates can go as low as 1.29% for floating rates and 1.45% for fixed rates in today's market. This could result in a substantial amount of savings if you choose to refinance.



What you should look out for when you 

1) Refinance if your current interest is considerably higher

If you are paying 2.6% and the current interest rate is 1.5%, it is no brainer to refinance.

Here is an example of how much you could save with refinancing

HDB Loan
$300,000 Loan @ 2.6% 20 years
Monthly Payment: $1604

Refinancing at 1.29% (Floating Rate)
Monthly Repayment: $1419

Savings $184.52 per month or $2214.24

Private Property Loan
$1,200,000 Loan @ 3% 20 years
Monthly Payment : $ 5545.07

Refinancing at 1.25% (Floating Rate)
Monthly Repayment: $4711

Savings: $834 per month or $10,000 per year!

2) Refinance if your loan quantum is higher and overall savings is greater than expenses

The higher the loan quantum, the more the savings as seen from the above example. If your quantum is low, the savings might not be worth it if the other banks do not offer subsidies for legal fees. \

Legal fees start from around $1600 for HDB and $1800 for Private Property. 
In addition, you need to pay valuation fee which is about $200 for HDB and $500 for Private Property

3) Consider repricing with your own banks

Refinancing means switching the home loan to another bank. Repricing means taking up a lower rate with the same bank. The difference is that refinancing requires legal costs and valuation fee, while repricing might not need this. Some banks do charge for repricing fees while others may offer one or two free repricings.



4) Take note of the terms of Refinancing

The terms to take note of are as follows

  • Lock-in Period:  The time when you are committed to the loan. Early payment might lead to a penalty
  • Penalty for Prepayment: Banks would charge you a % if you choose to pay your loans partially or fully
  • Commitment Fee: Some banks may waive fees if you sell your property early while others do not have this clause

5) Your financial status

Refinancing of an owner-occupied residential mortgage is NOT subject to TDSR and LTV limits when they refinance their loans for owner-occupied residential properties. However, if you are holding on to more than 1 property and would like to refinance your investment property, do not that TDSR and LTV applies

TDSR: Total Debt to Servicing Ratio
This should not exceed 60% threshold

LTV: Loan to Value
LTV would be different depending on how many property loans you have.

The current interest rate environment is beneficial for those who are looking for a lower rate. If you are looking to refinance your property, speak to your bank or head to one of the loan aggregator sites to enquire. You might end up saving enough for that next family vacation when we are allow to travel again.

Disclaimer
This is a research article. Do consult your bankers for more details on refinancing.







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