Ravi Chandran
PropertyGuru tackles top home loan refinancing misconceptions among Singaporeans in new research
- 45% of Singaporeans feel unwise to refinance within lock-in period, a top home loan refinancing misconception hampering opportunities to save money
PropertyGuru Group (PropertyGuru) today revealed Singaporeans’ top home loan refinancing misconceptions, according to new research conducted between 23 October to 30 November last year.
Top home loan refinancing misconceptions include perception that a lot of effort is involved
When asked for the reasons for not refinancing their home loans, the research identified that 45% of Singaporeans feel that refinancing their mortgage during their lock-in period is an unwise decision, 34% perceive that a lot of effort is involved to refinance their mortgages, while 21% brought up the need to pay thousands of dollars upfront when refinancing as a drawback.
Top home loan refinancing misconceptions prevent home owners from making right decisions
Paul Wee, Managing Director (FinTech), PropertyGuru Group said, “These findings all point to common mortgage refinancing misconceptions amongst property owners. Contrary to conventional wisdom, there may be circumstances where refinancing during lock-in periods or incurring break costs may still make sense. We have helped homeowners attain a revised loan structure with lower monthly payments and higher savings in the long run, despite having to incur a legal fee subsidy claw back. This is achieved by tailoring a cost-benefit analysis to determine if a homeowner’s long-term savings outweigh the costs incurred to their current loan.”
Commercial banks’ interest rates have also reached historical new lows due to the pandemic, serving as a good checkpoint for homeowners to review their current financial commitments, including home loans, and ensure long-term household economic health.
“Just like going for a regular health check, it is prudent to re-evaluate your finances periodically to ensure that the mortgage is serving your needs optimally. Everyone’s situation is different, and so is each home. Singaporeans should take a strategic and holistic approach to mortgage refinancing by considering other key factors such as their current financial situation, employment outlook, personal cash flow, and even life plans,” added Paul.
On the back of this discovery, PropertyGuru Finance’s latest “#Switch2Save” campaign in Singapore aims to shed light on the process of home loan refinancing, thereby encouraging Singaporeans to avoid top home loan refinancing misconceptions and act on the benefits of refinancing their home loans, thus saving money in the long run.
Bjorn Sprengers, Chief Marketing Officer & Head of FinTech, PropertyGuru Group said, “Getting a mortgage is often associated with uncertainty and inefficiency, as well as reams of paperwork, industry jargon, and tricky fine print. PropertyGuru’s #Switch2Save campaign shares the benefits of seeking one’s home loan through PropertyGuru Finance, a trusted mortgage advisor that is free, easy to work with and provides independent, personalised services for consumers’ better long-term financial benefits.”
To extend its reach amongst consumers, the campaign will be progressively rolled out through paid, owned, and earned media channels, running from 11 January 2021 till 31 March 2021, as part of a multi-channel marketing approach.
Mr Paul Ho, chief mortgage officer at iCompareLoan said: ” There are lots of top home loan refinancing misconception among those that want to refinance. If you have been shopping around for best home loans you may have noticed that different banks offer different rates and that even these may greatly vary at different points in time. The one big reason why this is so is because mortgages are complicated business and in this industry, there is no such thing a ‘one-size-fits-all’ approach.””
From local and foreign banks, to financial institutions, and credit cooperatives, there are many players in the mortgage business. These players have different amounts of funds at their disposal at different points in time, and based on supply and demand, these lenders offer different rates and repayment schemes.
The better known names of these lenders may offer higher rates in exchange for their perceived trust and familiarity of their brand. While smaller players may offer near-rock-bottom rates just to stay in contention with the ‘big boys’. Whatever it may be, there is big competition among the mortgagees and this is good news for the mortgagor.
The industry players offer different rate types such as 1-month Singapore Interbank Offered (SIBOR), Swap Offered Rate (SOR), 18-month Fixed Home Rates (FHR18), and floating rates.
SIBOR and SOR are open to public scrutiny as they are determined by the interactions between multiple banks. These rates are therefore quite popular among home buyers as they offer transparency and security for the mortgagors.
Fixed Home Rates (FHR) means the interest rate of the property loan is pegged to the bank’s fixed deposit rate. The FHR is usually followed by a number (such as 18). The number denotes the average fixed deposit rate over a given period. This means that the FHR 18 is pegged to the lender’s 18-month, average fixed deposit rate (which would differ from FHR9, and so forth).
There are some inherent risks in FHR as the mortgagee can unilaterally exercise control over the interest rates, thereby increasing costs for the borrowers. But financial institutions are often not very inclined to raise such rates because by doing so they increase costs to themselves.
Floating rates which are usually offered with a ‘lock-in’ period may charge lower interest at the outset, will fluctuate on a daily basis as the SIBOR or SOR rates move up or down. As such, floating rates could rise above the fixed rates or could drop even lower.
Also, be mindful that not everybody qualifies for the same mortgage rates. That’s because lenders use different tools and models for assessing risk, and for pricing loans based on the perceived risk the borrower brings. The interest rates your mortgagee offers you are partly determined by your credit score, your debt to income ratio, and the amount of money you were planning to put down on the loan. These are some of the strongest factors that influence rates (though they’re not the only ones).
The bottom-line is, different mortgage rates for different borrowers is good news for the mortgagor. But you have to be diligent in comparing the different home loans to see which fits you best and gives you better savings in mortgage payments over the long-run.
