What Is The Interest Rate For Refinancing Home Loans – Buying a home often means applying for a loan, which may mean refinancing a bank loan at lower interest rates in the future. For the uninitiated, here’s a breakdown of how to do it.
A house is easily one of the biggest ticket purchases for any Singaporean and is also considered one of the most important – most expensive – milestones on the road to adulthood. And if you haven’t inherited millions of dollars or won the lottery, you may have applied for an HDB loan or bank loan to cover the costs of your home.
What Is The Interest Rate For Refinancing Home Loans
You may still remember the excitement when you first made your down payment or the great relief you felt when your home loan was approved. But when the initial excitement wears off after a few years, you might think of ways to pay off your debt quickly and cost-effectively. Many homeowners will opt for refinancing – replacing an existing loan obligation, for example, an HDB loan with a bank loan that offers a lower interest rate.
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There are many considerations when it comes to refinancing, such as choosing fixed or floating rates or when is the best time to start. Today we will try to tell you how to refinance your home and possibly save you some money!
Note: This article will focus on HDB Bank loans instead of HDB loans with a fixed interest rate of 2.6%.
Every homeowner’s goal is to pay as little interest as possible over the life of the loan, so it’s important to pay attention to the lowest rates. Let’s start Home Loan Refinancing 101 by introducing two types of interest rate structures – fixed rate and floating rate – to the market.
For flat rates, buyers lock in a specific interest rate for a lock-in period during which the investment cannot be sold or returned and will be penalized if you breach this period. No matter how market rates fluctuate, your interest rate stays the same until this lockdown period ends, after which “floating” rates kick in.
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On the other hand, floating rates move up and down based on a reference rate based on local or international market indicators such as the Singapore Interbank Offered Rate (SIBOR), the Singapore Swap Offer Rate (SOR) or the Safe Overnight Funding Rate. SOFR).
Choosing fixed or variable rates depends on how you perceive the economy. Think of refinancing as a guessing game that requires you to understand and predict economic growth patterns. No, you don’t need to be a pro, but you should at least have an idea of how rates might change over the next two to four years — usually the years or duration of the lockdown period depending on the loan. partner:
Flat rates are often higher as banks charge a premium for flat rate loans, so consider it an extra payment for added peace of mind! Fixed rates can be attractive to those who are risk-averse and prefer firm budgets in the first years of their mortgage.
Covid-19 may have hindered BTO construction or ruined your renovation plans, but in the wake of the pandemic, there is a glimmer of hope for homeowners: falling interest rates!
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Many banks in Singapore have lowered interest rates as the economy slumps, so SIBOR may be the best time to opt for floating rates right now. Keep in mind that variable rates will cause a lot of trouble, as your monthly repayments can fluctuate accordingly.
Now that you know that interest rates have dropped, you can potentially save thousands of dollars by changing your bank’s home loan (from HSBC to Maybank, for example)! However, some of us may wonder if jumping ship is the best choice. You have two options, depending on whether you’ve met the lockdown period: refinancing or refinancing.
Some homeowners choose to switch from an HDB loan to a bank loan or from one bank to another to take advantage of lower rates. This is known as refinancing. Let’s say your interest rate was originally 2.5% when you signed up for your first home loan in 2017, and after four years your lock-in period expires and there are other banks that offer lower interest rates, for example 1.5%. By switching, you’ll be able to make less interest and mortgage repayments over time.
Using this scenario, you could potentially save up to $236.78 per month from the remaining $500,000 loan amount!
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But if your current bank comes up with a nice offer – a competitive loan package that will significantly reduce your monthly payments – you can accept that offer instead of changing banks. An option also known as a ‘cashback’.
Warning: For those who have not yet completed the lockdown period, refinancing or pricing may not be worth it. Timing is key when it comes to saving money on your home loan, and breaking your contract causes heartache, especially after facing loads of fees and penalties!
Although refinancing is actually aimed at reducing costs, the cost of penalties may outweigh any potential savings and you may end up losing more money trying to play the system. The list below shows the fees associated with breaking your lockdown, but before you want to fully refinance, check to see if your bank provides any subsidies for these fees!
In this case, re-costing appears to be a more economical alternative, paying a cost of $200-800 instead of just legal and valuation fees. Even better, the paperwork for the evaluation is much easier because you can skip the entire credit evaluation exercise and the process usually takes about a month to complete.
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Even if you choose to refinance after the lockdown period expires, your new bank will need to access your history, apply payrolls and manage the value of the property. This is a challenging process that takes up to three months. If comfort is high on your priority list, we recommend opting for a mortgage instead.
For those considering refinancing, the best time to refinance is usually four to six months before your lockdown expires. This time frame will get you locked in a good rate as soon as possible, especially if you are unsure whether interest rates will continue to rise.
From the day you issue your current bank statement until the transaction is complete, ideally your blocking period will expire and you won’t waste time switching to a new bank.
Before moving on to refinancing, take a step back to see if it matches the goals you want to achieve. Refinancing your home loan can reduce your monthly installments and your overall cost of borrowing, and with lower interest rates you’ll have more disposable income to channel into your savings, CPF or post-pandemic vacations.
Refi On Track
If your top priority is to save money and you don’t think you’ve moved to a new place recently, refinancing can be a great way to save some money.
Refinancing may also be something you consider when your finances change. If you bought a new extension, you may want to pay off your debt faster with a lower interest rate and equal monthly installments. On the other hand, those who are currently in a tight financial situation may want to extend the maturity and ease the cash flow, but it should be noted that this can increase the total amount of debt.
Paying off your home loan makes more sense, especially if you expect transitional costs to burn a big hole in your pocket during the lockdown. Hefty fines and fees can eliminate any potential cost savings and make you make a better decision if the cost of refinancing is higher than what you hope to save.
Paying off your home loan is the ultimate goal, but the decisions you make today will determine how quickly you pay off your mortgage or how much money you save. While there are many ways to save big on your home loan, there is no textbook answer as to which one to choose. The golden rule is to do proper research and reassess your goals before you take the plunge – get your home loan refinancing right and you’ll be one step closer to achieving financial freedom.
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This is a problem faced by many homeowners, especially those who are refinancing or refinancing for the first time. Which would be a more financially sensible choice? Is refinancing really worth all the administrative hassle? Is it still worth staying with your current bank?
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