Ravi Chandran
If you are planning to stay in your home for at least three to five years, it may make sense to reprice home loans and save on closing costs then getting the cheapest rate refinancing packages.
Mortgage Reprice means the the renewal of your existing mortgage plan with your existing lender without changing banks. The typical period to start reviewing your existing mortgage loans for repricing or refinancing should commence about four months before the ending of your package tie-in or lock-in period. This could range anywhere from between one to three years depending on the contractual terms when you first signed up the mortgage loan. At the end of this period your mortgage package, may no longer be the ‘cheapest’ in the market.
One main reason why homeowners should reprice home loans is because it is sometimes cheaper to do so than refinancing.
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Reprice home loans and stay with the same bank
Mortgage reprice basically keeps you under the same bank with your loan, it is often the cheaper because it has conversion fees of around $500 on average. But whether it saves more than a refinancing move or not depends on your loan amount and estimated penalty fees.
Homeowners who fail to consider both mortgage reprice and refinancing risk being held as mortgage prisoners. Iit may be more difficult for home owners to get onboard a new mortgage loan and miss refinancing or reprice opportunity because of the tougher lending restrictions imposed by Government regulators.
One such regulation which home owners need to be mindful is the Total Debt Servicing Ratio (TDSR). TDSR is to safeguard borrowers from overleveraging. This applies to property loans granted by all financial institutions. Currently, TDSR has a 60% threshold, and what does this translates to is that the percentage of your income that goes into servicing your loan cannot be more than 60%. All refinancing will have to pass the TDSR rule.
The TDSR was put in place to ensure that financial institutions exercise prudence in giving out loans, but this new rule actually traps a group of property owners, as they now would not be able to refinance their home loans to cheaper rates. Such home owners miss refinancing opportunity by the banks who first offered them these highly leveraged lending.
So the regulation which was introduced to rein in aggressive lending from banks actually benefited the banks who initially took the risks to lend more aggressively. This is because they now have a group of home owners who cannot refinance and are trapped in higher rates through the higher spread charged by the bank. It is ironic that the regulation which was supposed to impose financial prudence on the aggressive financial institutions, ended up hurting some home owners who fell prey to loose lending by the some banks.
If you miss the refinancing or reprice home loans opportunity, you have also got to worry that the prices of some property-types have remain fairly stagnant. Resale prices of HDB flats for example, have been on the downward trend since the third quarter of 2018 when prices fell 0.7 per cent.
If HDB flat prices do not pick up pace soon, such home owners’ homes could be worth less and the equity would be lower. The danger is if house prices did fall their loans may be higher than what their homes are worth, so they could still owe money if they are forced to sell.
This is where mortgage brokers come in. Such professionals are able to help home owners to get their expenses down before they make loan applications. The services of such professionals will be especially useful considering that the next wave of interest rates are due to hit soon, keeping more home owners as ‘mortgage prisoners’.
Banks, however, are usually slow off the mark in raising the interest rates in response to global events like the US Federal Reserve rate hikes. This lag time is where a mortgage consultant can best help a distressed buyer to finance a new purchase or to refinance their current property.
Mr Paul Ho, chief mortgage consultant said, “there may be a short window of refinancing opportunity for home-owners to to get the best rate in the market for their home loan, and they must grab it when they see it.”
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He added, “mortgage consultants can get the best rates for home owners who want to refinance their home loans by comparing across 16 banks and financial institutions – and best of all, our services are free.”
Not shopping around for the best home loan, could be the biggest mistake home owners could make, which would keep them trapped without refinancing or reprice home loans opportunity.
Do you check prices with several airlines before buying a plane ticket? Do you compare grocery store coupons to see which supermarket has the best offer? If you do all that and do very little to devote a little time to finding the best possible refinancing deal for your home, then you are potentially throwing tens of thousands of dollars in fees and interest over the life of the loan.
There are various reasons for why people make refinancing decision. It is important to carefully research when refinancing and analyze the best option in each specific situation. While the idea of having an extra lump sum of money is appealing, it is important to consider the options, especially during these rough economic times, it is important to keep in mind Long-term goals and ramifications that would be affected by refinancing.
One report suggested that more than half of property owners are paying too much for their mortgages and many people are locked into mortgages not suitable for their financial situation, in these circumstances, it is easier to the homeowner to make refinancing decision.
In the right circumstance, refinancing could be one of the best financial decisions made by a homeowner. Homeowners have to carefully consider the reasons to refinance, such as locking into a lower interest rate, or having a lower the monthly payment, and taking advantage of lengthening or shortening their home loan. The best home loan is just one step away from you not missing the refinancing opportunity.
