Ravi Chandran
Starting the mortgage refinancing process can be intimidating and cause you to make costly mortgage mistakes
A mortgage is typically the biggest debt you’ll ever own, so the goal should be to pay it down fast and smart.
Costly mortgage mistakes can be very expensive for you in repayments and interest, and it’s not just first home buyers who get burnt.
Starting the mortgage refinancing process can be intimidating, especially if you don’t have someone to give you the good refinancing deals. The goal of refinancing is to trade in your current mortgage for a new one that helps you reduce your rate and build equity faster.
But making mistakes during the process is easy if you don’t have the good refinancing deals, and this can also result in higher costs for you. The good way to refinance, though, involves knowing the most common mistakes and how to avoid them.
To avoid making costly mortgage mistakes you must make sure that your credit score is right.
A credit score is a number that the lenders consider before they determine if they should approve your application for loans in Singapore. It is a joint effort between all the major lenders here, where data about consumers’ credit history is pooled together and aggregated. Within the aggregated data, lenders would have access to records that show the number of accounts that you have across different banks, and your payment history.
After crunching the available data, each account holder is then assigned a credit score. This indicates how good or bad of a risk you might be to the lender as a customer. The higher the number (up to 2,000 and AA rating), the better your credit score.
Although the the exact weightage of how your credit score is calculated isn’t public knowledge, the factors that the Credit Bureau of Singapore (CBS) uses in determining your credit score is.
Factors like usage patterns of loan facility (e.g. if you have been making large purchases or transactions lately); your recent credit account activity (The number of credit facilities an account holder has is considered by banks as liabilities as they may perceive that you are over-extending yourself); and your account delinquency data, or how you have fared as a customer (this means where possible, always avoid making late or partial payments for your facilities).
Other factors considered by CBS include your credit account history, or how long you have been a customer (factors like if you have you been a loyal customer of your bank since you received your first credit card from them); how much available credit do you have (your credit score is affected by the number of accounts you have with various banks in Singapore); and enquiry activity of how many organisations have asked about you (having too many enquiries might indicate to banks that you could be taking on more debt than you should).
So if you looking for loans in Singapore, be disciplined in your spending habits to avoid going into debt, limit the number of credit facilities that you have across the different lenders, avoid defaulting on your repayments, and always paying your bills in full, on time. Also, avoid applying for accounts that you may not need.
Making costly mortgage mistakes may include going direct to the lender.
A lender is usually the financial institution that loans you the money for your home. Once upon a time, there were only a handful of large lenders to choose from; today, competition is higher and that’s good news for you as a mortgagee. However, if you visit a lender directly, you are only shopping in one store, rather than comparing loans and interest rates across the market.
A mortgage broker is the middle man, who uses your financial details to gather quotes from a large pool of lenders, giving you the chance to choose not just the best interest rate, but also the best loan type for you and any specials or discounts on offer.
One recent survey said that nearly half of all homeowners requested a quote from just one lender, and that consumers who received rate quotes from multiple lenders cut their interest rate by as much as 50 basis points (0.50%). That could be a savings of thousands of dollars. Your current lender or local bank may not offer the best deal.
A good refinance advice anyone could give you is to compare rates and fees from three to four lenders before you decide on one. With a good number of local and foreign financial institutions here, the choice of a lender and its packages can be mind boggling. Imagine having to compare over hundreds of different loan packages and wondering which is best for you. Even if you are a specialist in finance, differences between the loans in Singapore are not so straight forward, because there are quite a few variables.
This is where an independent loan specialist maybe useful for you in your search for a loan which is the right fit for your needs. Without any partiality, the independent loan specialist can compare a range of products and lenders. This will help you save time and money, avoid confusion, and improve your chances of getting approved, as well.
So if you are applying for home loans in Singapore, the lesson really is – never settle for the first loan you are offered as it might not be the right fit for you. If your credit worthiness is suspect, getting the right loan may be more difficult but certainly not impossible, especially if you have the right independent loan specialist to help you in your search. Ad the best news is, the services of an independent loan specialist is often free.
For starters, you should read up more so that you have some basic understanding of how an independent loan specialist can help you in your search for the right loan.
Homebuyers make costly mortgage mistakes when they assume that fees are non-negotiable.
You don’t have to accept an offer “as is.” In addition to interest rates, many fees may be negotiable. Multiple offers may persuade lenders to compete against each other for your business. Third-party fees that which you pay for services like insurance and legal may be negotiable. Provided you have good credit and have done a little comparison shopping, you should have enough leverage to bargain for a better deal.
But it could be very intimidating to talk to all the lenders, be overwhelmed by all the paperwork, and tedious to compare the different mortgage loans you are eligible for. This is where the mortgage broker comes in. The mortgage broker is typically an experienced professional who is familiar with the loan approval process, and having worked with different banks, they know their criteria and what makes the cut.
Mortgage brokers are independent, and so will be able to tell you which lender offers the most suitable loan package rather than selling the loan package from the financial institution they represent.
