Best Bank For Refinancing Home Loan – Buying your first residential property can be very exciting, but at the same time, calculations and analysis are an important part of the process. It involves a lot of money and is probably the biggest decision for you. In Singapore, home loans are provided for various properties; HDB flats, private properties, refinance and properties under construction.
Different types of residential property have different legal requirements and processes. For HDB flats, the valuation is done after the purchase offer. And for private property, the valuation is done before an offer to buy.
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Banks in Singapore usually offer a lock-in period of 2-3 years where the interest rate is fixed and so is the monthly installment. This will help you plan your monthly budget for your home loan.
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Loan packages offered by banks sometimes include statutory subsidies and cash discounts that depend entirely on the loan amount.
The timely free conversion features provided by some banks also help you take advantage of the low interest rates offered by other banks / packages.
Some banks also waive the penalty fee for partial repayment of home loans during the lock-in period.
This feature allows the borrower to sell their property during the lock-in period without paying any penalty fee.
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Borrowers link their home loan servicing account to their deposit account to get a deposit rate that ranges from 50-70% of your home loan rate. The interest earned is then used to reduce the principal faster. And this feature is only offered by HSBC, Standard Chartered Bank and HSBC.
Closing costs are usually fees paid by the bank for lending the loan. However, there is an option to include this amount in the total cost. If you want your bank to pay this cost, the interest rate will increase.
The initial amount paid in connection with the purchase of the property is a down payment. The higher the down payment, the lower the interest on the home loan.
When calculating the term of your home loan, the FICO score is used based on two factors; your credit score and your income level. To enjoy a lower interest rate, your income level must be high and your credit score good.
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The term of the loan directly affects your interest rate. Shorter loan terms often have higher interest rates.
The 5-year fixed rate housing loan is only for HDB flats. This applies to new properties and refinancing of HDB flats.
The minimum loan amount is S$20,000 and there is a free conversion after 60 months from the date of the first payment. The interest rate with a lock-in period of 5 years is 1.40% p.a. for the first 5 years and then it is 1.60% p.a + FHR6.
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Wayne is a Chartered Financial Analyst (CFA) and holds a Bachelor of Business Management (Finance) from Singapore Management University (SMU). A successful relationship manager during his time with DBS and HSBC, Wayne uses his financial market expertise to help his clients build comprehensive investment portfolios. The entrepreneur is also the founder of Home Loan Whiz, a mortgage consulting firm that helps clients choose the best mortgages for their needs.
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Refinancing your home loan in Singapore means reducing your monthly payment amount by switching to a lower interest rate.
This may mean switching to a new loan package at your current bank or switching banks altogether. Here’s what you need to know about refinancing in Singapore:
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Home loan refinancing is an opportunity for homeowners to transfer their home loan to another bank for a lower interest rate. This will help you save money in the long run.
Refinancing is usually done when you reach the 4th year of your home loan or later. This is because the average home loan packages increase their interest rates after 3 years, after which the interest rate tends to increase. So this is the best time to see if another bank can offer you a lower interest rate.
Another reason why Singapore home owners are considering refinancing their current home loans is due to changes in SIBOR and SOR rates (which determine the interest on some home loans) .
SIBOR and SOR may be on the way due to global economic changes, so if an increase is forecast, you want to switch to a low interest rate loan as well.
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The Monetary Authority of Singapore (MAS) and the Association of Banks of Singapore (ABS) monitor these SIBOR and SOR rates and make daily adjustments to the interbank lending rates.
Ms. Liana has an outstanding home loan of $300,000 with 20 years remaining. Its current interest rate is 2.6%. That means he pays about $1,604.36 a month.
Suppose the bank is willing to offer him a housing loan package of 1.8% for the first 3 years. If he takes it, he will only pay about $1,489.40 per month. That’s a difference of about $115 per month, $1,380 per year, and $4,140 after 3 years!
Of course, this is a simplified illustration. In fact, you should include other factors such as the lock-in period in the actual cost of the refinance. (More on that in the next section.)
Sibor Forecast 2018
You also have to pay legal fees and appraisal fees when you refinance. You can get back $2,000 to $3,000 depending on your property type.
So while you save money in the long run, the amount you save may not be as significant as it was at first. In this article, we’ll cover all the costs that go into a refinance package so you can better understand it.
While you can technically refinance at any time, you should always wait until the lock-in period ends before getting on board. If you try to do this during the lock-in period, you will usually be charged a penalty, usually around 1.5% of the remaining loan amount.
However, there is no need to wait until the lock-in period ends before starting the refinancing process.
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Newly signed refinance agreements are valid for 6 months, so in a rising interest rate environment, you want to get a good home loan package as soon as possible. You must also give at least 3 months notice before you can refinance.
Here’s how early you should refinance to make sure you don’t pay a higher interest rate:
Usually, bank loans have a lock-in period of 2 or 3 years. You’ll want to note the date your current bank will increase your home loan interest rate and work backwards from there.
Based on the timeline above, the start of your refinance application process should begin about 4 months before the extension date. This affects the 3-month notice period you need to serve with your current bank and also the application time of the new bank you want to switch to.
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Lock-in periods are the norm, but if you’re really lucky, you might be one of those people who apply for a home loan package without lock-in. This can happen if you signed your home loan during a price war between banks.
We have already discussed the various costs of refinancing – legal fees, appraisal fees, prepayment penalties during the lock-in period.
However, some of these costs may be subsidized by the bank under certain circumstances. For example, if the amount of your loan is large enough, banks are willing to pay legal fees with subsidies. They usually do this for outstanding loan amounts above $500,000.
While everyone loves a good free meal, think carefully about taking such statutory subsidies as they often come with terms and conditions. Usually, they prescribe a certain duration known as “payment period”, which is the time you must stay in the bank before you can refinance to another bank without penalty.
Commercial Property Loan
In other words, this is a new lock-in period for your new home loan. If you don’t stay with this bank while it still exists, the bank will return the freebies they gave you.
Another cost of refinancing is known as a cancellation fee. This happens when you refinance a home loan package when the property is not finished. For buildings under construction, the housing loan amount is paid in installments. The amount of the cancellation fee is about 1.5% of the outstanding loan amount.
If you are unhappy with the increase in interest rates on your current home loan, you have another option besides refinancing – refinancing. Repricing a home loan is similar to refinancing, except you stay with the same bank and switch to a new loan package they offer you.
The time required for re-pricing is shorter compared to refinancing, which means you can switch to a package with a lower interest rate more quickly.
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Repricing does not require legal fees and a new property appraisal is not required.
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