REFINANCING : A FULL BREAKDOWN OF HOW YOU CAN REALLY SAVE MONEY
Suppose you are interested in saving money on your mortgage.
In that case, this article aims to help you better understand how refinancing or repricing your mortgage can help you do that.
What exactly is the “refinancing/repricing” business all about?
Refinancing means replacing your current housing loan with another – one with a much lower interest rate.
Most of us in Singapore are proud owners of our homes, and we would have taken up a housing loan when we purchased our homes.
Questions:
- “When was the last time you took a good look at your housing loan statement?”
- “Are you still enjoying the promotional rates offered by the bank?”
Being all excited to be proud owners, we are occupied with ideas of how to renovate & decorate our new home. The 10-page letter of offer filled with legal jargon provided to us by the bank officer would be signed and sealed with little thinking. We are the least bit affected by the bank officer’s notification that the loan period is for 25 years.
Little do we realise that for most of us, our current housing loan is secured by a mortgage based on the promotional rates offered by the bank at the time of the loan. These promotional rates would only be low for the first couple of years (maximum 3 years); the rates would have gotten progressively higher.
Refinancing is one of the best ways to save money on your mortgage to refinance your mortgage at a lower interest rate. In addition, you can reduce your monthly mortgage payments by refinancing your mortgage. Another benefit of refinancing your mortgage is getting a longer loan term. This may allow you to keep your monthly payments low.
If you are interested in refinancing your mortgage, it is essential to compare the interest rates of several lenders to find the best interest rate.
Can we save money by refinancing? What are the actual savings?
Generally, we can save money by refinancing!
Illustration of what the actual savings are.
CURRENT SITUATION – Loan Amount $800,000/- @ 5.5% p.a.
Year | Current Rates | Current Instalment | Total Payment Per Year |
1 | 5.50% | $4,642.31 | $55,707.72 |
2 | 5.50% | $4,642.31 | $55,707.72 |
3 | 5.50% | $4,642.31 | $55,707.72 |
4 | 5.50% | $4,642.31 | $55,707.72 |
5 | 5.50% | $4,642.31 | $55,707.72 |
NEW PROMOTIONAL RATES OFFERED BY BANKS
Loan Amount $800,000/- @ 1.25% (1st year); @ 1.35% (2nd year) & @ 1.45% (3rd year)
Year | Current Rates | Current Instalment | Total Payment Per Year | REAL SAVINGS!! | |
1 | 1.25% | $2,766.01 | $33,192.12 | $22,515.60 | |
2 | 1.35% | $2,803.75 | $33,645.00 | $22,062.72 | |
3 | 1.45% | $2,841.81 | $34,101.72 | $21,606.00 | |
4 | 5.50% | $4,642.31 | $55,707.72 | $ – | |
5 | 5.50% | $4,642.31 | $55,707.72 | $ – | |
TOTAL ACTUAL SAVINGS FOR 3 YEARS | $66,184.32 | ||||
But before you take the plunge, you should factor in the cost of refinancing. You need to check if you are still within the “lock-in” period, i.e. would any penalty be imposed (usually 0.5% to 1% of the outstanding loan amount) if you terminate the existing housing loan early.
Final Tip: You should check with your current bank to review your loan rates. Most banks would allow customers to convert to the “new package”. That way, you will enjoy the promotional interest rates without hassle and trouble.
It is possible to save money and improve your quality of life by refinancing your mortgage. Consult us via Lawyer Anywhere to refinance your mortgage.