Why You Should Refinance Your Home Loan
Market uncertainties and better interest rates are just some of the main reasons
Why do homeowners refinance their home loans? The most obvious reason is in the name of interest savings. But other factors such as the political climate (for example, the Trump presidency and Brexit) also affect interest and your refinancing decision.
To put things into perspective, here are a few reasons why refinancing your home loan should be a top priority.
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The aim of any refinancing is to save money. Take a close look at the numbers and you will realise how interest repayment figures can add to your financial burden.
Different banks have a range of loan packages that suits individual profiles and needs. There are, however, two common types for homeowners to look at: fixed rate and variable rate. There are packages that combine elements from both, and is more suitable for discerning homeowners with unique preferences.
Regardless of which package you are looking at, 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.
Uncertainty from political upsets
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Interest rates are determined as much by the prevailing SIBOR as the current political climate. Global confidence has been dipping due to the Trump presidency and the unforeseeable future for the European market due to Brexit. In general, this is bad news for the economy.
In the case of the United States’, one thing is certain: the U.S Federal Reserve will see an increase in interest rates. This in turn will affect bank rates in our part of the world and you can expect it to keep fluctuating. Get in fast and refinance your loan to a fixed mortgage rate, to prevent locking yourself into a higher interest when the SIBOR jumps up.
Switching to bank loans for better rates
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If you are currently on a HDB concessionary loan, you can switch to a bank loan. What’s the advantage? For one, HDB loans are fixed 0.1% above CPF interest rates at 2.6%. The fixed rate gives a solid defense against market fluctuations but you will miss out on bank loan packages that offer much more attractive rates.
For instance, a quick comparison on GoBear will show quite a few banks offering per annum rates that are much lower than HDB’s fixed 2.6%. 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.
Do note that the abovementioned reason applies only if you are switching from a HDB to a bank loan but not vice versa.
Changing TDSR policies
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With Monetary Authority of Singapore’s lifting of the Total Debt Servicing Ratio (TDSR) for mortgage equity withdrawal loans that have a loan-to-value (LTV) ratio of 50 per cent and below, this is good news for homeowners. This means you are able to refinance without worrying about outstanding debts limiting you due to the TDSR.
This policy change, while recent, might be altered due to market changes. Point being, always consider your refinancing options, especially when the cards are in your favour. However, don’t refinance beyond your means - always stay as debt-free as possible.
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This article was contributed by GoBear, which helps you compare and find the best credit card rewards, cashback with exclusive welcome gifts, and interest savings for personal and home loans. Compare credit cards, travel insurance and home loans to suit your personal needs.