Why Should You Refinance Your Housing Loans ?
Updated: May 18, 2021
To my dear investors, you always have a keen sense of exploring further into property investment to increase your assets but commonly being demoralised by the hefty sum of the monthly bank mortgage installment?
To my beloved homeowners, you hope to find ways to allow you to save more expenses from your month to month financial commitment?
Do you know that now it's the best possible time for you to grab a good deal from banks to refinance your housing loan because of the current pandemic situation happening around the world?
Housing loan just like a car loan, is one of the biggest financial commitments you can ever take on and could easily spend the next few decades trying to pay off. With a simple refinancing of your loan, you could easily save up more money to minimise monthly bank payment and buy more GROCERIES!!
So What Is Refinancing?
Refinancing of your real estates in Singapore simply means to end your existing housing loan package from your current bank and take on another support from another bank.
*Case Study (Real time client, Mr Ka Fei) *Not a real name
I have a client Mr Ka Fei, a long term business owner very fluent with property investment, as busy as he is, he will try to find time to have coffee and share his past experiences with me, truly grateful for that. He LOVES coffee!
Perhaps it is due to the Covid-19 situation, just last week I received a call from him. He told me that he was unable to provide any further rental relief to his tenants, explaining about his current financial situation and would like for the other unit to be rented out at the earliest to aid his month to month financial situation. It was clear that he needed help, and first thing that came to mind! I asked, "Mr Ka Fei, what is your current bank mortgage interest rate??" And.....Wait for it....
KA-BABOOM! MIND BLOWN!
Mr Ka Fei owns multiple properties and has been paying the same bank at the property loan package at the range of 2.5% - 2.95%, due to the nature of his busy schedules which renders him pretty much helpless to keep track of the bank rates, he just went with the bank from the start. With the consolidated bank interest rates on hand, I immediately suggested for him to do a refinancing with another bank that is giving a 1.5% fixed rate. My banker contacted him and assistance was delivered.
I ain’t no superhero, I do not fly around with a cape, but this recommendation really helped him to stay afloat and minimised his expenses.
Now he can save over THOUSAND of dollars monthly from the difference and buy alot and alot of coffee!!
Is Refinancing The Same As Repricing?
No, simply put, refinancing involves switching to a loan package offered by a different bank, whereas repricing will just be taking on a different loan package within the same bank.
A general rule of thumb to consider to REFINANCE as long as these conditions are met:
- No longer held down by your bank’s lock-in period
- Other banks are offering better interest rates
Most loan packages come with a lock-in clause.
Lock-in usually lasts for 2 to 5 years. If you choose to refinance within such period, you will have to pay a penalty (commonly 1.5% rate of the remaining loan amount). In short, I do not advise you to break such lock-in because the penalty equates to a pretty big amount.
The reason for the banks to impose such penalty is because banks are making some money from you through the interest payable, and they can’t allow borrowers to just roam freely and “jump ship” freely. This penalty acts as a form of insurance to the banks.
When Should You Refinance?
Just like my current situation, I have narrowed down to a GOLDEN hour to rush down to the bubble tea stores that will be opening after the lift of Circuit Breaker. I want to be the first, so I can avoid the indefinite queues. I love bubble tea! (Avocado Milkshake? Oh my…..).
Similarly for your real estate planning. The best time to refinance is when:
*A better package surfaced in the market
Housing loan packages are very dynamic, as banks are always trying to create attractive packages to match the demands in the market for the consumers. Your current loan package may have been the most sought after a few years ago, however it is not possible to say that it will still be the best at this moment.
Usually a housing loan package will have a super low rate during the first two to three years, during which the interest rates are kept at the lowest. Thereafter, the rates will usually take on a significant spike.
This is when, at the end of your low rate payment period of the first two to three years, you should consider refinancing.
The Best Way to compare Housing Loan package
Well, there are a couple of ways you can find out,
Knock on your neighbour's door and ask. “Ah Hua, what bank are you with right now ah?”.
Find a housing broker’s contact and ask for the consolidated list.
Message a property agent and ask for a general sensing of which bank with the highest take up rate.
OR (LASTLY!! TAKE NOTE)
Message me, this might come as a surprise, I AM A PROPERTY AGENT and i have brokers and bankers readily supporting me with the most updated bank rates.
Refinancing also allows homeowners to stretch their current loan tenure
For some of my homeowners, do you know that you can also refinance your loan by stretching your loan tenure, which yes, the overall cost will increase (due to interest) but it will decrease your monthly installment.
Yes or No to Refinancing?
It depends. However if you choose to stay on with the same package throughout the time of your loan tenure, I'm certain my client Mr Ka Fei will disagree with that. High interest rate to the bank.. WHAT FOR?!
Of course, to know how much you will potentially save by refinancing, some calculation will be required.
The most important step will be to calculate how much is your monthly installment after taking a new package and compare it to your current monthly installment, how much will you be able to save?
For example, if the difference is about $250 a month with the new loan but you incurred a $1,000 cost in legal fees to do refinancing, it will take you $1000/$250 = 4 months to break even before getting real savings. Now then ask yourself 4 months of wait and followed by $250 savings for many more months. Will it be worth it?
If you are still unsure or having difficulty deciding whether refinancing is worth it, just drop me a call, gladly to be at your service.
What are your concerns when you are thinking about refinancing? Tell me more about it!
If this sharing has provided you with further insights and you think that it could be beneficial for your fellow friends, feel free to share!
You might also be interested to find out "Things You Might Not Know About Property Investment. https://www.victorchua.com/post/things-you-might-not-know-about-property-investment
Victor Chua, Senior Associate Director of OrangeTee & Tie, is a up and rising leader making a stand in the real estate industry.
He enjoys working out during his free time and can sing a couple of songs decently without having any leftover food thrown at him. When not doing so, he enjoys spending time with his family and love ones as he sees family as his top priority.
Professionally, he is a licensed real estate agent, investor, team leader, and a Real Estate Salesperson (RES) trainer in Navis Living Group.
Throughout his career, he has helped many clients grow their wealth through meticulous and intentional real estate planning by selecting great property investments and also managing their portfolios actively.