When Should You Start Planning To Refinance Your Mortgage?

Guest Contributor

Guest Contributor

Last updated 12 July, 2022

Mortgage refinancing can be a great way to save money, but it's not always the best option. 

Homeowners have many options when it comes to managing their mortgages. One option is to refinance the house. But what does it mean to refinance a house? In short, refinancing is getting a new loan (whether a home loan or a personal loan) to pay off your existing debts. 

When to refinance mortgage

Waiting until your lock-in term is ended before refinancing might save you money. If you try it during the lock-in period, the lender may charge you a penalty fee of 1.5% or more of your outstanding loan amount. 

Contracts are usually only valid for a set number of months after they are signed. Therefore it's great to secure a solid home loan package early on and provide at least three months' notice ahead of time so you can pounce on the chance when rates start climbing again. To avoid paying a higher interest rate, you should refinance as soon as possible.

To get the best interest rate possible, you must be aware of when your current bank will increase its rates. So work backwards from there and plan how much more money needs to be saved each month to avoid being hit with higher monthly payments after this change goes into effect.

Typically, banks offer loans with lock-in periods ranging between two to three years, but take note that if interest rates are increasing right now, you can expect a raise in your rates after the lock-in period. 

Starting your process of refinancing applications should begin about four months or so before the date that an increase will take place. This factors in time for not only serving three-month notices to the current bank but also submitting new applications to any desired lenders during this same window period too. 

Reasons why homeowners in Singapore consider refinancing 

Singapore is a country with one of the highest rates of homeownership. For many Singaporeans, their home is their largest asset and their most important investment. As such, it's not surprising that there are several reasons why homeowners in Singapore might consider refinancing their mortgage.

Secure a lower interest rate

When is it worth it to refinance? Homeowners often choose to refinance their house when interest rates drop. A lower interest rate is one of the main reasons homeowners in Singapore consider refinancing. Interest rates on home loans in Singapore are currently at an all-time low, and many homeowners are looking to take advantage of this by refinancing their loans.

There are a few different ways to secure a lower interest rate when refinancing, and it is important to compare rates from different lenders before making a decision. Homeowners who have a good credit score and a strong employment history may be able to negotiate a lower interest rate with their current lender. 

Reducing your interest rate saves money and improves equity, and may lessen monthly payments on loans for homes or other real estate transactions.

Shorten the loan's term

By refinancing to a new loan with a shorter term, homeowners can save money on interest payments while paying off their mortgage more quickly. This can be especially beneficial if interest rates have fallen since the original loan.

Utilise the equity in your home

When a homeowner refinances, they can take out a new loan that is larger than their existing mortgage. The difference between the two loans is the equity that the homeowner has built up in their home. This equity can be used for various purposes, such as making home improvements, consolidating debt, or investing in a new business venture. 

By utilising the equity in their home, homeowners can gain access to a larger sum of money without selling their property or taking out a second mortgage. As a result, refinancing can be a smart financial move for homeowners who want to use the equity in their homes to their advantage.

Converting from HDB loans to bank loans

One of the most common reasons for refinancing is to convert from a HDB loan to a bank loan. There are a few reasons homeowners might convert from a HDB loan to a bank loan

  • First, banks typically offer lower interest rates than HDB. This can save homeowners a significant amount of money over the life of the loan. 
  • Also, banks typically offer a wider range of products and services than HDB. This can give homeowners access to features like home equity loans and line of credit products.

Switching from floating to fixed rates

For years, banks have used the Singapore Interbank Offered Rate (SIBOR) as a daily reference rate because it sets expectations for all other rates. As the prevailing market conditions determine SIBOR, it fluctuates daily. This, in turn, affects the interest rates of floating rate home loans, which have been pegged to SIBOR. 

In recent years, there has been an upward trend in SIBOR rates. This has led many homeowners to consider refinancing their home loans from floating-rate products to fixed-rate products to avoid potential increases in monthly repayments. 

There are a few things to consider when considering refinancing, such as the costs involved and whether it is the right time to do so. However, for many homeowners, refinancing from a variable-rate product to a fixed-rate product can help lock in rates and provide peace of mind against potential future hikes in SIBOR rates.

What happens if you refinance your mortgage with the same lender?

When you refinance your home loan with the same bank, the process is called "repricing". This can be an excellent way to get a lower interest rate on your mortgage and change the terms of your loan. For example, you might be able to shorten the length of your loan or switch from a variable-rate loan to a fixed-rate loan. 

Repricing can also be used to access additional funds, which can be used for home improvements or other purposes. The process of repricing involves closing out your existing mortgage and taking out a new one with different terms. This can be a good way to save money on your mortgage, but it is important to understand the potential risks involved. 

If interest rates rise, you could end up paying more in interest over the life of the loan. There may also be fees associated with closing out an existing mortgage and taking out a new one. As with any major financial decision, it is important to speak with a qualified professional before proceeding.

Disadvantages of mortgage refinancing

Mortgage refinancing can be a great way to save money or get out of debt, but there are some potential drawbacks to consider before you decide to refinance. 

Pay more interest over time

When you refinance, you usually have the option to choose a new loan term. If you choose a longer term, your monthly payments will be lower, but you'll ultimately pay more in interest because you're extending the life of your loan. As a result, it's important to consider the monthly savings and the total cost of the loan before deciding whether or not mortgage refinancing is right for you.

Pay closing costs

Paying closing costs is one potential drawback of refinancing your mortgage. Closing costs can be relatively high – often, they total several thousand dollars. And unfortunately, you typically have to pay them upfront; very few lenders will allow you to roll closing costs into your new loan. 

As a result, refinancing can be pretty expensive, and it may not make financial sense for everyone. However, there are a few ways to offset the cost of closing. 

  • First, some lenders offer "no-closing-cost" loans. These loans generally come with slightly higher interest rates, but they can still save you money in the long run. 
  • Many lenders will allow you to defer some or all of your closing costs if you agree to pay a higher interest rate. This option can also save you money over time, although it may not be the best choice if you plan on selling your home in the near future. 

Time-consuming and stressful

You'll need to gather all of your financial documents and meet with a lender to discuss your options. If you're not careful, you could end up paying more in fees and closing costs than you would save by refinancing. Additionally, if you have an adjustable-rate mortgage, you may lose the low introductory rate if you refinance. As a result, it's important to do your homework and consider all of the potential risks and rewards before you decide to refinance your mortgage.

Banks offer a range of rates for home loans, which you can capitalise on. Whether you’re a first-time homeowner or looking to refinance, compare the best home loans for the most advantageous rates. 

Read these next:

Rising Interest Rates And The Effect On Mortgage Debt In Singapore

Step-By-Step Guide To Buying Your Very First HDB BTO In Singapore

How Much Do You Need To Buy Your First Home In Singapore?

How Much Should You Pay For A Home Renovation In Singapore?

How To Buy A House In Singapore: A Complete Guide


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