Renowned for having some of the most awe-inspiring skyscrapers globally, Singapore oozes splendor from Guoco Tower to The Sail at Marina Bay. However, this opulence doesn’t come cheap, with the city being one of the most expensive countries in Asia to live in, which means for residents that their homes are among the costliest things they own.
With a house comes either a home loan or mortgage, which is often one of our biggest monthly outgoings or sources of debt. Sine home loans and mortgages are long-term financial commitments that can take upwards of twenty-five to complete, ranging from hundreds to thousands to millions of dollars.
Often, we end up cutting down on our spending habits to keep the payments ticking over should we not have enough in our CPF accounts, or we may consider refinancing our home loan to one with a lower interest rate. Refinancing is surprisingly one of the last options homeowners consider when trying to save money – but it can reap many benefits. So, you can take advantage of these benefits; here are some of our top tips for Singaporeans looking to refinance their home.
Shop Around For Lenders
When you start the refinancing process, it should feel like you are applying for your mortgage again. However, despite sharing many of the same procedures such as TDSR checks, in-principle approval, comparing loans, etc., refinancing is an entirely different loan, and the process will differ from what you’re used to.
As you did at the start of your home purchase journey, it’s essential that you shop around for and compare different lenders to ensure that you get a good deal. We recommend taking your time and comparing costs from at least three to four other mortgage refinance lenders to be assured that they’re reputable and that you get the best value for your money.
Doing so might mean that you’ll have to go through the pre-approval process a couple of times, but it’s a chore that will save you money in the long run. To make the refinancing process more manageable, you could even consider enlisting the services of mortgage experts such as PropertyGuru, whose team can handle various tasks on your behalf. From assistance with in-principle approval checks to helpful resources about a range of property-related topics, their website is ideal for residents and foreigners looking to purchase, sell or refinance property in Singapore.
Keep Your Debts Low
Much like the checks that you’re subjected to when you purchased your house, once you decide that you want to refinance your home loan or mortgage, your bank will put you through the usual financial checks all over again. Including checking your total debt serving ratio (TDSR) again to determine whether you meet the requirements and if the loan amount still meets the loan-to-value etc.
Like home-buying, refinancing your home loan or mortgage is a process you must qualify for. This process isn’t automatic, and just because you were approved for a loan before doesn’t mean that you’ll be approved again. For instance, suppose that you were looking to purchase a second home; just because you were approved to buy your first house doesn’t mean you’ll automatically qualify for a second home purchase.
To improve your chances of getting approved, much like you did when purchasing your home initially, ensure that you pay down your debts and that your credit score is satisfactory. Attempt to start paying down your debts well before beginning the refinancing process to give yourself the best chances.
Avoid Refinancing If You’re In A Lock-In
If your home loan has a lock-in clause, which prohibits you from getting out of the agreement for a specific period and you’re still within this period, we recommend avoiding refinancing until you’re out of it. The penalty for refinancing while still in your lock-in period is often 1.5% of your remaining loan amount, plus the refinancing fees.
So, suppose that you still have $650,000 of your home loan remaining, and you decide to refinance while in your lock-in period? In that case, you’ll end up with a penalty of $9,750 on top of the refinancing fees. No matter how much you desire to refinance, if you are within your lock-in period, there will never be a time when the decision will save you money – which is the entire point of refinancing.
Unless a situation arises in which your loan’s interest becomes so high that sticking with your current provider would cost you more than the lock-in penalty charge, it’s better to wait until your lock-in period is over. If you really cannot wait to do something about your home loan, you could look at the repricing options that your bank offers. Although repricing is an entirely different process than refinancing, it’s worth researching or contacting an expert for further clarification before making any rash decisions.