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Should you refinance your mortgage?

Spotted another loan package with attractive interest rates and benefits? Or perhaps your mortgage’s interest rate has gone up after the end of its promotional period?

Refinancing a mortgage is to pay off an existing loan by taking up a replacement, usually with a different bank. However, the question to ask is when should you refinance, and what should you consider when it comes to managing your home loan?

Is refinancing always the right choice?

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You may have heard from friends and family that refinancing your mortgage can save you money. Given the large amounts typically involved, a slight decrease in interest rates can result in significant savings. However, before you send off the application, some calculations are in order.

If your existing bank has high penalty fees for making an early redemption, think twice. Early redemption penalties and fees vary from bank to bank, so it’s vital to check if the potential interest savings are higher than the costs involved in switching over. Don’t forget to add in possible costs from your new mortgage as well, such as legal fees charged by the bank.

If your existing mortgage is still within the lock-in period, then it is not advisable to refinance. The penalties involved are almost never worth it.

Another reason to consider refinancing is when your financial situation has changed, and you are looking to increase or decrease your loan tenure (based on the maximum tenure allowed). Shortening it allows you to clear off your loan faster, say with lower interest rates and similar monthly instalments. Lengthening it lets you lower the monthly repayment, thus easing your cash-flow. One thing to note is that lengthening the loan tenure may lead to an increase in the overall amount that you pay.

Should I refinance my property mortgage?

Considering a refinance? Here’s a quick checklist of questions you should ask:

  • Is my mortgage currently still within the lock-in period?
  • Are the penalties, fees, and other associated costs of refinancing significantly lower than my current package?
  • Would the updated TDSR rules potentially affect my ability to qualify for refinance?

If you answered yes to the questions above, then refinancing might not be the best option for you.

Are there any options?

Calculate how much you can save before you decide to refinance or reprice your mortgage

Other than refinancing with a new institution, you can also consider repricing your mortgage with your existing lender. Your current bank could also be offering new and more attractive loan packages that you could switch to.

With repricing, you stick to the same bank, and thus avoid incurring some fees (such as legal fees).

Be sure to read the fine print of any mortgage package you are considering. Calculate and compare the loan packages, inclusive of any processing fees, to ensure that the switch to refinance or reprice makes the best financial sense for you.