Lets Go, Refinance?!
The interest rate is expected to go up. You are on a floating rate type of loan with your lending bank. Lets quickly refinance to a floating rate type to save on interest!
The world economy is not performing well. Interest rate is falling. Lets quickly refinance to a floating rate type to enjoy the falling interest rate and save some interest!
But WAIT! Do not rush to get your mortgage without knowing some details. It may not be worth all the efforts.
Save for Cash-Out refinance, the ONLY reason why one should refinance is when it saves money.
Ready. Set. Go!
Ready
Some people rush into ‘Go’ without getting ready. We always tell our clients that refinance is not a matter of should or should not. It is a matter of when. While the critical condition to make money in any investment is timing, the critical condition to saving money is also timing when it comes to refinancing.
We have come across friends who are not aware of the need to refinance. Or they do not monitor when their lock-in expires nor the interest rate they are paying. The problem with us nowadays we set auto-deduction via giro and we literally forget what is being paid every month. By the time we know it, we have missed the timing and had probably been paying extra interest for months.
Getting ready is the first step. The fact you are reading this article means you are aware of the need to refinance. It is a good start. But what exactly is getting ready? And what are you getting ready for? Save for all arguments, you get ready to save precious hard-earned money on your interest. And that is why you choose to refinance at the end of your lock-in period because you will not need to pay any penalty or in some cases, legal fee to be clawed back. The refinance exercise is mostly more viable when your lock-in period expires.
Set
Set your calendar to notify yourself 6 months before your lock-in period expires. If you are thinking the bank will probably call you to remind you, they won’t. When your lock-in expires, you pay a higher interest rate. The bank probably won’t call you to notify that you are paying them more. Maybe they should. But we know they don’t.
You have to notify your lending bank 3 months in advanced if you do not wish to continue your mortgage with them. The refinancing bank will need 2-3 weeks to process your refinance. Making room of delays, you should at least give yourself 4 months buffer. Add another 2 months to do whatever research you want.
These are all in theory. Owners usually do not bother about refinancing until it is about 3 months. That’s common. I can totally understand because there are just so many things to keep your mind occupied. Even if you are reminded, you probably will procrastinate and refinance at the last minute anyway.
Another way is to link up with us at RefinanceGuru. We keep track of owners’ lock-in period and remind them when it is time to look into refinance.
Get ready with some information regarding your loan from your lender. Ask when does the lock-in expires. Ask for the outstanding loan amount by end of lock-in period and the remaining tenure of the loan. If you have a floating rate loan, they might not be able to advise you as rate changes. And depending on your floating rate type, you can get the outstanding loan amount 3 months or 1 month before lock-in expires for 3-month pegged and 1-month pegged floating rate type respectively.
Go!
Once you have those basic information ready, you are ready to go and get the best refinance interest rate. You can compare rates and packages of various bank. You can also check how much you can save when you refinance. Refinance banks can sign you an agreement that can last for 6 months. Not asking you to sign up and wait for 6 months. But you do have the grace period to execute when you want within 6 months from signing.
The first thing is to decide what interest rate type should you refinance. You do so by asking what is the view of the economy for the next 2-3 years. Why 2-3 years? Because that’s the usual period of lock-in when you refinance. In general, there are 2 scenarios, 1) interest rate is likely to rise or 2) interest rate likely to drop.
There are lots of articles and research on economic outlook. Sometime I think you have to feel what the ground tells you. A simple gauge is people are not willing to spend more on non-essential products or services when economy is not doing well. And people tend to spend more when economy is bursting with life and energy. When you plan 4-6 months before your lock-in expires, you can read and research all you want.
If you think interest rate is likely to go up, choose a fixed rate to lock in the interest rate. If you think interest rate has the tendency to drop, you may choose a floating rate. There are 3 different types of floating rate and pegged to Sibor, bank’s mortgage board rate (MBR) or the fixed deposit home rate (FHR). The more popular ones are pegged to Sibor and FHR.
All documents required by the refinancing bank must be submitted. And Bingo! You refinance is done when you get the approval.
Final Thoughts
Refinance as easy as it seems, does require some planning. Property is probably the biggest ticket item one can buy. Therefore savings can be substantial especially when the loan is huge. Finding the best refinance deal is made easy with a tool like what we provide.
A lot of wealthy people created their wealth through property. They not only refinance their properties but cash-out refinance on their properties with there is equity on their properties. This is a trick that one can do to grow their wealth. But this is only for private properties and not HDB properties.
Some are afraid of making that decision to refinance. They prefer to let things stay as is because they are not sure what loan package of interest rate type to choose. Sometimes we just need someone more experience to talk to. RefinanceGuru is always willing to be the listening ear.
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