Lock-in Period is About to End
Home loan refinancing should always be a strategic move. That’s why it’s important to know when your lock-in period will end. While it’s possible to refinance at any time, you’ll incur a penalty fee if you switch during the lock-in period. However, you shouldn’t wait until the very last day of the lock-in period. Bear in mind that there’s a 3-month notice requirement before you can jump ship. So plan ahead and start the refinancing process at least 4 months before the new interest rate cycle kicks in.
Loan Tenure Extension
Some home buyers refinance to improve their cash flow by extending their loan tenure. However, this can only apply if the existing loan tenure is less than the maximum loan tenure. Whether you’re looking at refinancing your HDB or private property, you can extend your loan tenure for a maximum of 35 years or until you reach the age of 75. Take note that the period served since your current loan’s first disbursement will be deducted from the maximum loan tenure extension.
Better Interest Rate
Another reason for refinancing your home loan would be changing to another loan type. Whether you’re converting from a fixed interest rate to a floating interest rate, or vice versa, each type has its own merits.
With a fixed rate package, the interest rate is locked in for a certain period of time, ranging from 1–5 years. Since it’s deemed to be more stable, the rate is slightly higher compared to a floating rate package. By the time the lock-in period ends, your fixed rate package will change to a floating rate. Do note that converting from a fixed rate to a floating rate is only ideal if the home loan package you’re switching to has a lower interest rate, and if you’re able to keep track of SIBOR on a regular basis.
In the case of a floating rate package, the interest rate fluctuates depending on where your loan package is linked – SIBOR or Fixed Deposit. These floating rate packages may or may not have a lock-in period. Sometimes, home buyers who are tied to a floating rate switch to a fixed rate package, so they can better plan and manage their finances. Their fixed monthly repayments give them a sense of security.
Lower Monthly Instalment
When refinancing your home loan, you should aim for a lower interest rate to lower your monthly repayments. Usually, the next cycle of repayments will have higher interest rates because the mortgage schedule is always on an upward trend. So if you’re unable to take advantage of the refinancing window, which is 4 months before your existing home loan renews, you’ll end up paying higher monthly instalments.
Unlock Equity Through Cash Out Refinancing
Exclusive to private properties, home buyers in Singapore can use their private property as collateral to take out an equity loan. Usually, the cash out is capped at 60–75% of the property value less the remaining loan amount and CPF used for the same property. It advisable to avoid taking the maximum cash out allowed and to give leeway for changes in property valuation.
