Ravi Chandran
“Refinancing my home, how is it useful for me?” This would be a question on many home owners’ minds who want to save some money on their mortgage
Refinancing my home – what does it mean?
Refinancing your mortgage basically means that you are trading in your old mortgage for a new one, and possibly a new balance. When you refinance your mortgage, your bank or lender pays off your old mortgage with the new one; this is the reason for the term refinancing.
When you refinance your home loan you basically lower your fixed interest rate to reduce payments over the life of the loan, to change the duration of the loan, or to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa.
How do I get my money back when refinancing my home?
You can get cash-back, or cash-out from mortgage refinancing deals to get money out of the loan to pay down some extra debt. It is called home equity loans. Such loans work best when you have decent equity in your home.
How much money can I get when refinancing my home?
If you own a private property, you can make use of your property as collateral to take out a home equity loan. Usually, you can get up to 60% or 75% of your property’s value (minus the remaining loan amount and any CPF used for the same property) in cash.
Would I lose my home equity when I refinance?
The equity that you built up in your home over the years, whether through principal repayment or price appreciation, remains yours even if you refinance the home, but your equity position over time will vary with home prices in your market along with the loan balance on your mortgage or mortgages.
How many times can I refinance my home?
There’s no limit on the number of times that you can refinance your mortgage loan. However, their may be factors that limit your practical ability to refinance. These include the amount of equity for cash-out refinances.
Refinancing my home – how do I know when to do it?
Refinancing is usually done when you hit the 4th year of your home loan or after. That’s because typical home loan packages raise their interest rates after 3 years, after which the interest rate is likely to rise. So this is the best time to see if another bank can offer you a lower interest rate.
What costly mistakes should I avoid when refinancing my home?
- Failure to get your credit together –
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.
2. Failure to compare lenders –
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.
3. Assuming 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 like the professionals at iCompareLoan 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.
