Wednesday, August 12, 2015

Is It Necessary To Refinance Our Housing Loans?

Most Singaporeans who have bought their own property will have to take up housing loans in order to afford one. We may have heard about refinancing in one way or another but what exactly is it and is it necessary to refinance our housing loans? Did you know that if you refinance a 1 Million property loan regularly, you could save more than $50,000 through it? Each time of refinancing can save you at least $10,000 in interest every 3-4 years. With higher housing prices, refinancing becomes more important as it could save us a lot of money in the process.

Not many people refinance their housing loans as it seems quite troublesome. But if I tell you there's an easier way out for refinancing without having to search for the better loan packages yourself and without having to queue up at the bank, would you reconsider it? Let's look at how refinance can help us save money and how easily it can be done.


Credit: https://commons.wikimedia.org/wiki/File:Housing_and_Development_Board_flats_in_Bukit_Panjang,_Singapore_-_20130131_(multi-row_panorama).jpg

What is Refinancing?

Before we get into how refinancing can help save us money, let's understand what is refinance? Refinance is a term used to describe the change of loan terms from one bank to another. If there's a better package from another bank at lower rates, we can refinance there to get better rates for our loans.


How Bank Loans Work?

We can take up housing loans mainly from 2 places. Firstly, HDB does provide housing loans at interest of 0.1% above the CPF OA. It is currently at 2.6% interest. Secondly, we can take housing loans from banks which currently has interest rates lower than 2.6%.

In this post, I will focus on bank loans and how it works. From here, you'll be able to understand why it makes sense to refinance your housing loans on a regular basis.


Two Types of Housing Loans Packages

Fixed Rate Packages

Banks will not fix any rates for the long term. Fixed rate packages in Singapore are normally fixed for 2-5 years only. Thereafter, it will revert to floating rate again.

For example, if a bank say they have this fixed rate package at 1.80%, the rate may be fixed for 3 years and then becomes floating rate later from the 4th year onwards depending on market conditions. Refinancing before the rate reverts to floating will guarantee us fixed rates again.


Floating Rate Packages

For floating rate packages, the rate also changes after a short period of time, typically on average 3 years. Banks will always offer a discounted rate for the first 3 years then revert to a higher rate from the 4th year onwards.

For example, if a bank say they have this floating rate package at 1.5%, the rate is usually made up of a spread + 3m SIBOR, board rate or other floating scheme the bank has. The spread is normally lower at a discounted rate for the first 3 years and then revised upwards from the 4th year onwards. If we refinance before the rate reverts, we can always get the lower discounted rate.

How a typical floating rate home loan package looks like:


Year 1Year 2Year 3Year 4 onwards
0.75% + 3m Sibor0.75% + 3m Sibor0.75% + 3m Sibor1.25% + 3m Sibor

As we can see above, a typical loan package will have lower spread rates for the first 3 years then from 4th year onwards, the spread rates will revised upwards. Refinancing our loans before the rates revise upwards will ensure we always get the lower spread rate.

*The above is just an illustration of rates and do not represent any packages from any banks or financial institutions

How Much Do We Actually Pay In Interest?

Did you know you would have paid $330,523.23 in interest alone for a 1 Million mortgage loan over a 30 year period at 2% interest? If we just refinance it at 0.5% lower, we would have saved almost $100,000 in interest. $100,000 is quite a significant sum of money.

Maybe we don't want to look at long term but how about the instalment we pay every month? Will there be a difference if we refinance our housing loans? Yes there will be. If we have a 1 Million loan at 2.6% interest to be paid over 30 years, the monthly loan instalment is $4,004.00. If we can get a rate of 1.5%, the monthly loan instalment drops to $3,452.00. This helps us save almost $600 every month! Even for a few hundred thousand dollars loan for a HDB flat, we could still save a few hundred dollars a month just by refinancing.


Refinance With Ease And Skip the Queues

The benefits of refinancing is quite significant to help us save on the interest paid and even lower our monthly loan instalment. We could save a few hundred dollars a month and almost $100,000 over the long term. The problem why many people don't refinance is they don't know where to get the best rates or they don't have time to go to the banks to do it.

Refinancing is made easier with mortgage brokering services. Through this service, you get free advice on your home loans and get the best rates. All applications can be done without going down to the bank itself. Its a one stop service that addresses the needs of individuals or families to help them save time and money. You can now refinance your loans with ease.

One month ago, I decided to explore mortgage brokering service and offer it to everyone here after going through the necessary trainings. I like that this service is provided free of charge and at the same time I can help people get the best rates and also help them save time and money.

You can refinance your home loans with me where I can personally help you to calculate on your potential savings and recommend the best rates as I compare against 16 different banks and financial institutions in Singapore. Check out the service I provide here: http://sgyounginvestment.blogspot.sg/p/mortgage-consultancy.html

You can also email me at sgyi@homeloanwhiz.com.sg for any enquires which you might have.

Refinancing smartly can help save us a substantial sum of money.

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Related Posts:
1. Can You Afford That Million Dollar Condominium?
2. How Much Loan Can You Get For Your HDB flat?

8 comments:

  1. Is there any minimum loan amount to be eligible for refinancing ?

    ReplyDelete
    Replies
    1. Hi,

      The minimum loan amount depends on the banks itself. You can email me at sgyi@homeloanwhiz.com.sg and I can help you further with regards to any refinancing enquires. Thanks!

      Delete
  2. Way to go! Is it your full time job ? Wishing you all the best. What is the market rate now for fixed housing loan?

    ReplyDelete
    Replies
    1. Hi financialray,

      Thank you for your kind words. This is just a freelance job. The market rate for fixed rates is still below 2% now.

      Delete
    2. You have a bright future ahead. It is a win-win service for you and your customers because your customers get your services for free and also get the best housing loan rates while you get commissions from the banks for your hard work. You remind me of the late Dennis Ng.

      Delete
    3. Hi financialray,

      Yes its a win win situation. That's why i took it up. Thanks for your encouragement :)

      Delete
  3. Hello..
    You miss the lost of refinancing? Legal fee from both lawyers,valuation fee. These days I doubt these costs are absorbed by banks....

    ReplyDelete
    Replies
    1. Hi LC,

      Legal fees can be subsidised if we find the right package. That's my job as a mortgage consultant to find the best deals for clients. I do a detailed report for all my clients to illustrate the cost savings which they will have through refinancing. Then they can decide whether to go ahead with refinancing or not. Most of the time there will still be cost savings as we Singaporeans generally have large loans amount due to higher housing prices.

      Delete