Singapore is a country that has a high home ownership rate of 87.9%. This means that almost every house in Singapore is proudly owned by a Singaporean.
But despite the high rate of homeownership, there is still a lack of knowledge about homeownership. Many homeowners like you don’t know all of your home loan refinance options, or worse, have misconceptions about refinancing your home loan.
We’ve done some research ourselves and dig into some of the most unthinkable reasons we’ve heard that lead homeowners to not refinance their home loan. Plus, we provide some professional advice on why these reasons not to refinance don’t make sense to you as a homeowner.
1. You are afraid of “breaking things” when refinancing
There is a saying, “If it ain’t broke, don’t fix it.” Well, that’s the attitude some homeowners take when it comes to home loans in Singapore. And that can be attributed to the fears that homeowners worry about when refinancing.
Here are some of the common worries homeowners face and what we have to say about them:
Should I stick to the same loan amount and term if I were to refinance?
Refinancing involves changing your existing loan agreement from one bank’s home loan package to another bank’s. This means that you effectively have the flexibility to restructure your loan as you see fit (within legal limits, of course!). So, for example, you have the possibility of increasing the duration of your loan (and therefore paying less each month). You can even borrow more than your existing loan amount! This is called cash-in refinancing, which we will cover in another article.
Do I have to pay another “down payment” when I refinance?
The only time you may need to shell out additional funds as an additional down payment is when you switch from an HDB loan to a bank loan. Indeed, for new purchases, the loan-to-value ratio (LTV) for HDB loans is now 85%, while the LTV for bank loans is only 75%.
However, there is no regulatory LTV limit on refinanced home loans. banks and other financial institutions may grant up to the full amount outstanding, provided you meet their credit assessment criteria.
What happens if I lose my job or receive a pay cut after I refinance?
The amount of the home loan is determined at the time of refinancing. Once you refinance, any changes in your monthly income will not affect your home loan as long as you can still afford the monthly mortgage payment.
Mortgage Master Pro Tip: Refinancing is a golden opportunity for you to lower the interest rate on your home loan and achieve tangible savings by reducing your monthly repayment amount. There’s almost no risk in refinancing your home loan, so there’s no reason to miss out on those savings.
2. You didn’t know you could refinance your mortgage
Did you know that you don’t have to stick to the same mortgage formula throughout your home ownership journey? And did you know that you can take the first step to refinance your mortgage even before the end of the blocking period? Let’s explain.
Every home loan package comes with a lock-in period. The lock-in period is a period during which you cannot terminate your existing home loan. If you choose to exit your home loan package (i.e. refinance) while you are still within the lock-in period, you will be required to pay a penalty.
This works very similarly to contracting for SIM plans with your current phone carrier. If you try to switch to another phone company while you are still under contract, you will be liable for termination fees.
The typical lock-in period for a home loan is two to three years. Since there’s very little you can do during this lock-up period without incurring penalty fees, it’s not uncommon for homeowners to put the mortgage aside. Since two to three years is a long time, you might forget about it to the point that you don’t even know you’re eligible to refinance another home loan again.
Mortgage Master Pro Tip: Take note of when your lock-up period ends and set a reminder on your calendar for 18 months later (if the lock-up period is two years). Indeed, you can start looking for a new home loan to refinance as early as 6 months before the end of your lock-in period.
Alternatively, if you have hired a mortgage broker like Mortgage Master, our mortgage specialist will help you keep track of dates. When the time is right, our mortgage specialist will contact you to remind you to refinance.
3. You think refinancing is too complicated
Refinancing a home loan sounds sophisticated, complex, and takes a lot of effort. Well, that’s what most homeowners who are unfamiliar with refinancing perceive the process to be. In reality, the refinancing process is really much simpler.
If you are considering doing the refinancing yourself, all you need to do is follow five simple steps:
- Research to find the best home loan package from banks
- Make your choice on which mortgage formula to choose
- Engage the bank and let them know you are considering refinancing and the home loan package you wish to refinance
- Complete the relevant bank forms
- Once your lock-in period is over, you can refinance the new home loan package
Mortgage Master Pro Tip: In fact, there’s an even better way to refinance with all the heavy lifting done for you: through a mortgage broker. A mortgage broker will help you complete steps one through five for you. They will advise you on the best home loan deals for your financial situation and ensure that the proper documentation is obtained to ensure that your refinancing journey is smooth and as uneventful as possible.
All you have to do is choose your preferred home loan package as advised by the mortgage broker and be ready to sign up for the new home loan program.
4. You worry about the amount of money that needs to be paid upfront when refinancing
A common concern among homeowners when it comes to refinancing is having to shell out money up front when you refinance. For refinancing, there are a few fees you will need to consider.
a. Cancellation fees
If the loan amount on your existing home loan has not been fully disbursed, you will be charged a cancellation fee on the undisbursed amount. Cancellation fees are generally between 0.75% and 1.5% on the undisbursed amount.
Why you don’t have to worry about it: Cancellation fees are typically for new launch condos that have not yet (or have just) obtained their Temporary Occupation Permit (TOP) where the last part of the purchase price has not yet been disbursed by the Bank. A good mortgage broker will advise you if it is worth incurring these cancellation fees when refinancing.
b. Legal fees
Each home loan package comes with its own set of documents such as transfer of ownership. These documents require the bank’s legal team to review them, and as a result, they typically pass these legal fees on to you when you refinance. Legal fees can vary between $1,800 (HDB) and $3,000 (private property), depending on the bank and type of property.
Why you don’t have to worry: When you refinance, it’s common for banks to subsidize legal fees, if your loan amount exceeds a certain amount. However, the caveat is that there is a stipulated recovery period, and the bank will recover the legal costs from you if you refinance during this period.
vs. Expert fees
To determine how much loan the bank can lend you under the home loan, the bank must first determine the value of your property. This requires the engagement of a professional real estate expert by the bank to value your property. As such, they charge a fee between $250 and $1,000 to appraise your property when you want to refinance your home loan.
Why you don’t have to worry about it: Similar to legal fees, it’s also common for banks to subsidize appraisal fees. The same clawback clause will also apply if you decide to take the grant.
ALSO READ: A guide to financing your first home
Although you may have to pay some money up front when refinancing a home loan, it is likely that most fees will not apply to you or will be fully subsidized by the bank. So you don’t have to worry about anything, especially if your outstanding loan is high enough.
Mortgage Master Pro Tip: If you’re not sure which bank offers a home loan package with fee subsidies, let Mortgage Master help you. Not only will we research the best home loan package to refinance, but we’ll also calculate which bank loan package will save you the most in the short and long term.
5. You don’t think it makes sense to refinance at this point
Interest rates on home loans fluctuate from time to time, depending on the state of the market. So, there is always this fear of missing out (FOMO) for owners. What happens if you refinance and the interest rate drops further? Homeowners will then start to wonder if now is the best time to refinance or if we should wait a bit longer because the interest rate seems to be falling.
But the problem is that the paradox of choice will eventually hit homeowners and you will end up not being able to make the decision to refinance.
From our many years of experience in the mortgage industry, the one thing we’ve learned is that waiting for a lower rate to refinance almost always ends up costing the homeowner more in the long run.
Mortgage Master Pro Tip: We launched Mortgage Master to help and provide value to homeowners. One way to do this is to offer our professional advice on whether the time is right to refinance or not.
First, we are looking for the best home loan with the lowest interest rate. Next, we compare your existing home loan with the new home loan package and show you the potential savings you can realize when refinancing. We also provide our professional opinion on whether we think this is a good opportunity for you to refinance to save on your monthly mortgage payment.
This article was first published in Mortgage Master.