Tuesday 30 August 2016


With the economy in recovery and property value on the steady rise, interest rates on the housing loan are becoming increasingly competitive. If the monthly interest and installments on your current loan just doesn’t add up, perhaps you should consider refinancing.

Refinancing is when you are currently servicing an existing housing loan and you want to switch to a different financier in order to enjoy better terms or service.  With refinancing you can enjoy:
  • Lower interest rates
  • Lower monthly installments
  • Faster loan repayment
It would be prudent for you to consider the net savings to see if it is beneficial to make the switch. There have been cases where homeowners have decided to make the change even when there are initial costs involved with the forecast of potential savings over the mid to long term. Savings would not only be derived from lower monthly installments but more importantly from the interest saved on the entire loan quantum.

Before carrying out your refinancing exercise, check the following:-

Are there any refunds / payments to be paid to the existing bank if you redeem the existing loan?

If you redeem your existing loan, do you have to pay a penalty fee to the existing bank? Some loans have a clause which imposes a penalty fee payable if the loan is redeemed within a fixed period after the first release of the loan.

Is there any part of the loan which has not been released by the bank and if so, is there a cancellation fee payable to the bank? If your existing loan has not been fully released by the existing bank, some banks may charge a cancellation fee for the loan cancelled.

Was any legal subsidy granted by the existing bank and is the legal subsidy repayable to the bank on redemption? Some banks require you to repay the legal subsidy if the loan is redeemed within a fixed period after the first release of the loan.

Were there any other rebates / subsidies granted by the existing bank? If your existing bank has granted you any other rebates or subsidies such as cash rebates, penalty subsidy, FI subsidy or valuation subsidy, check if these rebates / subsidies have to be refunded.

Like all homeowners with an outstanding housing loan, you would be equally concerned with the interest rate charged on your existing housing loan. If you find that your existing housing loan no longer meets your needs, or if you are dissatisfied with the interest rate charged on your current housing loan, refinancing your existing loan would be a better option. With prudent mortgage planning, refinancing may help you in saving your hard earned money by reducing the monthly installment for your existing loan, or it may assist you repay your loan in shorter years.

Choosing the right loan package.
There are many home loan packages available from the banks. There are many types of interest rates available – floating rates; fixed interest rates; rates linked to the Swap Offer Rate. Choose one which is most suitable to you – the savings can be substantial. Consult your bank officer – ask him to explain the difference between the packages available!
What are the terms in the new loan that you should look out for?

Do you have any intention to sell your flat in the near future? If so you should opt for or ensure that you will be able to redeem the new loan without penalty.

Is the new bank offering free fire insurance and free property valuation? The free fire insurance will save you this expense and the free property valuation means you do not have to spend this money for refinancing.

Is there any cash rebate offered by the new bank? Some banks offer a cash rebate. This takes place in the form of a cash payment from the new bank to be credited into your account when the refinancing exercise is completed.

Would you prefer a housing loan which offer a constant monthly installment payment? Some banks offer this option so that you need not worry about rising interest rates resulting in higher monthly installments payable by you. The monthly installments will remain the same regardless of the interest rate so that any change in the interest rate will affect the length of the loan only.

How much do I have to pay for legal fees for refinancing?
Check with the new bank - the new bank sometimes offers a legal subsidy which helps to reduce this expense. However there is usually a clause requiring the owner to repay the legal subsidy should be new loan be redeemed within a fixed period from the date of the first disbursement of the new loan.

Legal documentation required for refinancing comprise the following:

The discharge of the mortgage in favour of the existing bank;

A fresh mortgage in favour of the new bank;

A fresh charge in favour of the Central Provident Fund Board (where CPF funds will be used to service the monthly instalments payable under the new loan).

The new bank’s lawyer will prepare and explain all these documents to you and you should need to attend at the lawyer’s office only once.

Last but not least, what do you need to bring along when seeing your new bank for a FREE consultation?

Your existing home loan statement and your NRIC

Article Contributed by Kelvin Chia Partnership
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