Eight Things You Need To Know About Refinancing Your Mortgage

There are good debts, and there are bad debts. Most people will agree that a housing loan is a form of good debt. Yet, given the chance, the majority will choose to pay down their housing loan so that they can speed up the prospect of being debt-free. For example, you or your spouse receives a sizeable year-end bonus. Or one of you decides to cash out on a profitable investment. Perhaps one of you wins the lottery. After splurging some of the windfall, you will probably think of paying off your debts, such as your housing loan.
Or maybe you took a housing loan when interest rates were high. And now that interest rates have dropped, you’re considering refinancing to save on your monthly loan repayment. Ignatius Yeo, a mortgage consultant with Find A Home Loan, recommends keeping these key points in mind.
1. Find A Home Loan helps you find the most appropriate interest rate package.
Ignatius’s clients typically seek him out when they’re looking for a lower interest rate package. For example, if you’re currently paying an interest of 2.50%, he’ll help you find a more attractive package. This means a lower interest rate if you’re looking to lower the interest cost on your housing loan.
2. There are various fees involved with refinancing.
There are legal fees and valuation fees involved. Most housing loan packages offered by banks come with a legal subsidy. This is typically 0.20% to 0.40% of the outstanding loan amount. Homeowners will need a law firm to act on their behalf for the refinancing. The bank will need the lawyer 1) to prepare the mortgage documents for both the take-over bank and the homeowners; 2) to notify the existing bank of the switch of financier; 3) to notify the CPF Board if the homeowners are using their CPF to pay their monthly loan instalments. There’s also a stamping fee charged by IRAS.
Ignatius has had homeowners go to him seeking a refinance during their lock-in period. This is where he’ll help them assess whether – in spite of all these costs, plus the penalty fee – it still makes economic sense for them to do so. For example, if they’re paying something like 2.00% but currently what’s available is around 1.30%, that’s a 0.70% difference – which is able to cover all the costs. Most importantly, it results in an interest...