Article Advise

submitted: Aug 24th 2008 | by: WendyOng | Total views: 2 | Word Count: 452 | |

Considerations to take note of when refinacing your mortgage:

1. Calculate the savings against the costs Your existing bank would impose a penalty if the home loan is still within the penalty period. This is normally around 2-3 years for Singapore mortgage loans. If it is, you may wish to calculate the cost savings of refinancing against the cost of the penalty. If the positive benefits are small, it may not be worth the while then to refinance at this point in time

2. Check new terms and conditions the terms and conditions of the new bank that will be providing you with the refinanced loan: - check out the penalty for full redemption - penalty for partial prepayment - any lock in feature - legal subsidy - any clawback period for legal subsidy - anu other conditions

3. Lock-in vs No lock-in Ascertain if the interest rates are fixed or variable. Typically, variable rate packages do not require a lock-in i.e. the homeowner can 'walk out' of the loan and move it to another bank without the full redemption penalty (normally around 1.5%). A fixed rate housing loan can be more attractive in a rising interest rate environment. However, fixed rate packages normally come with higher interest rates i.e. one has to pay for the certainty. To a large extent when the global economy is weak, interest rates tend to be lower. We are currently enjoying a relatively low interest rate environment.

4. Have a view on global interest rates It is important to have an idea of where global interest rates are at this point in time and which direction they would be heading. Typically, global interest rates will rise in a growing economy in order to slowdown the effects of inflation arising from an overheating economy. Rising rates would add more costs to your financing. For now, we are still enjoying fairly low rates comparatively. With the slowdown in global economies, academically speaking, rates are not expected to shoot up aggressively. 5. Opportunity costs - to keep the loan or pay it down completely? If you have the means, this is a good problem question to answer. Nevertheless, the simple answer is to ask yourself if you can achieve better returns on the capital you are going to use to paydown the loan than the cost savings on the interest rate itself. Hence, if for example, the cost of the mortgage is 3.5% p.a. and you believe you can achieve better returns than that by investing in other assets, then by no means, keep the mortgage and deploy your capital in a higher yielding investment.

About the Author

Refinancing a Singapore mortgage can seem like a daunting task. However, you may call us at (65) 9018-2177 or email us at mortgages@maplecommerce.com or visit our website http://mortgages.maplecommerce.com to walk you through your refinancing options. Contact us for a free assessment.

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