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6 tips on refinancing your home loan

6 tips on refinancing your home loan

Singaporean homeowners have been enjoying cheap housing loans for a long time, on the back of historically low SIBOR rates. The Singapore Interbank Offered Rate (SIBOR) which is the rate most home loans are based on, is generally expected to increase when US Federal Reserve raises their interest rates by end of 2016.

With interest rates seeking to rise, Singaporean homeowners with outstanding home loans might wish to consider refinancing

Here are some key things to look out for:

1) Monitor the loan’s lock-in period and pre-empt the hike

When your lock-in period expires, and you receive the letter from the bank that informs you that home loan interest rates are due to increase the following month, it is then already too late to avoid higher payment for a minimum of the next three months, due to the notice period requirement. Since some homeowners only realise that the rates are going to increase, when they receive the letter from the bank, it will be wise to avoid this.

To avoid this, refinance your home loan four to seven months ahead of the lock-in expiry.


2) Bargain or switch banks for a better offer

Calling your bank and negotiating for the best refinancing deal, is something that homeowners should do. In the worst case, be ready to look elsewhere for a better deal.


3) Find out about all the fees involved in switching banks

Mortgage refinancing is not just about repaying the principal amount.

Some homeowners might not know about fees involving their home loans. One such fee is a legal fee called clawback requirement. If you refinance with another bank before the lock-in period with your current bank expires (which is usually three years) a legal fee of around 0.4 percent of the loan will usually apply.

Should you decide to pay up your loan ahead of the lock-in expiry, there is also a penalty fee. Which is usually around 1.25 – 1.75 percent of the outstanding sum.


4) Dress up your TDSR

Total Debt Servicing Ratio requirement (TDSR) limits home loans to 60% of the borrower’s gross monthly income. This requirement has made refinancing difficult for some homeowners.

Some “dressing up” of TDSR is therefore necessary; by paying off some other debts, and would be a good idea to do it earlier, perhaps a month or two ahead. This would be beneficial as it shows up fully paid on your Credit Bureau report. Which can be printed off its website for $6.42


5) Navigate LTV Limits

Loan-to-value ratios are ratios that set out the limit of a property’s value that a bank can finance. For those that have one or multiple existing home loans, the LTV is significantly reduced. However, couples who are financially capable can “de-couple” to increase the limit for the second loans.

What this means is, is that if one spouse’s income is sufficient to support the existing loan, there is no need to have both names on the mortgage loan.

It would then be beneficial to remove one spouse’s name from the existing mortgage. This way, that spouse will then be free to take up another loan as a first mortgage, and therefore get the maximum LTV for a second property.


6) Scenario Planning is still Key

Ultimately, a stress test is still necessary to find out how badly a homeowner will be affected, when SIBOR increases by a certain level.

This is the key analysis before deciding which bank and what rates to take up. 


Speak to our Mortgage Gurus today! They are excited to share and analyse the interest rates options with you!

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