If you’ve just purchased your first home, congratulations! Not only do you now have a new position of your own, however you also have a 25-30 year loan in your control that’ll take up the lion’s share of your budget.
Mercifully, there’s a means for you to reduce your monthly repayments and increase the capital gains in case you wish to sell your home in the future – through refinancing. You’re still several years away from refinancing (every 3 years), but it doesn’t hurt to learn about it now.
When you refinance, you’re choosing to end your existing loan program with your present bank by continuing your repayments with another bank that offers a better loan package.
Let’s say you’ve a 1.95% SIBOR bundle from your present bank. By refinancing your loan with the bank offering a loan bundle that is better, you’ll be able to make lower monthly repayments.
Recall, there’s not any such thing as a “loyalty” discount for staying with your present bank. It’s in your best interest to refinance to save cash if another bank offers a better loan bundle.
How Does Refinancing Compare to Repricing?
Both words sound similar, but they mean something different. The biggest difference between the two is the fact that repricing is when you switch from one loan package to another within the exact same bank.
Let us say you’ve a 1.95% SIBOR package from your bank, and after a few years it offers a new 1.65 SIBOR bundle. You’d be repricing because you switched loan bundles within precisely the same bank in case you changed bundles.
You ought to also not that some banks offer “free” repricing, enabling you to change packages without incurring any “management fee,” that’s usually around $500.
How Much Does Refinancing Cost?
Refinancing is not without its prices. By simply requiring all banks to discontinue paying subsidies on valuation, legal fees, and fire insurance mAS made sure of that. That means you will have to pay those fees to the bank whenever you want to refinance, and that can mean $2,000 – $3,000 . Thankfully, you can use you CPF to pay these fees.
Moreover, some banks have a lock-in clause that survives from 2 – 5 years. So it is best to wait until the lock-in period finishes to refinance.
Important Note: In case you purchased your house before October 2012, you may recall the bank paid specific subsidies on your home loan including legal costs, valuation, and fire insurance.
When Should You Refinance?
Depending on your situation, you will have to hesitate until either the “clawback” or lock-in period in your home loan has ended to refinance. However, what about when that period passes and it’s safe to refinance without any extra fees?
You’ll know it’s the perfect time to refinance when:
A better bundle is offered: The Andrew Residences Potong Pasir – Home loan packages change from month to month. If you managed to get a good home loan deal, it won’t stay a good deal forever. So once you can refinance (generally after 3 years), be sure to search for financing package that’s at least 0.5% less than your present rate. Don’t forget, the lower your interest, the lower your repayments.
You should alter you loan’s tenure: Refinancing can help, if you are a borrower who is not worried regarding the total cost of your loan, but the cost of making monthly repayments. So if your loan’s tenure is 25 years, you can refinance it to 30 years, that will decrease your own monthly repayments, but raise your overall cost.
Your savings matches or exceeds your cost within a year: Before you refinance, ensure you calculate whether your savings is more than the cost in a year. In this case it is 15 months, so it is advisable to find a better deal.