Current Interest Rate

If your latest interest rate is higher than other housing loan packages, consider reinvesting. Go back to your current bank or financial institution and ask them to reprice your loan package. Most likely, your lender will give you an offer, which is better than your current one. Make a comparison between this offer and with offers from other lenders to see whether you should switch or stay put.

Lock-in and Clawback Periods

Lock-in period is when your lender give you a penalty if you want to fully repay your loan. Many housing loans have drawback period. This is when the lender will take back what they gave you when you get your housing loan. Lock-in period is different from clawback period. Thus, it is not advisable for you to reinvest due to these extra costs.

Loan Quantum

The higher the amount of your loan, the greater your savings for the same decrease in interest rates will be. However, fixed cost to reinvesting, which comprises mainly of legal fees, does not vary much with loan quantum. The difference between your current and reinvesting interest rates has to be larger for a relatively smaller loan as fixed cost takes into a more considerable part of your interest rate savings.

Identify Interest Rate Movements

Your analysis on how interest rates are moving can be a factor when considering whether you should reinvest. Try a floating rate package as an alternative to fixed rate package if the interest rates are decreasing. Conversely, if you are on floating rates and believe interest rates are increasing, switching to fixed rates may be a good choice.

Own Financial Evaluation

Try to get a fixed rate package. Consider increasing your loan quantum. When your monthly income increased and you want to decrease interest payments, try to reduce your loan tenure.

In Singapore, expats are not restricted by government authorities from acquiring their own residential properties.

Basically, the Residential Property Act of Singapore encourages Singapore citizens to buy residential properties in the country at reasonable rates. In addition, this act encourages expatriates who are recognized by the Singapore government to have made significant contributions to the economic prosperity of the city-state in their desire to acquire residential properties within Singapore.

Non-restricted residential properties can be acquired by expatriates even without prior approval from the Singapore government. The following are residential properties that belong to the non-restricted class:

- apartment flats within a structure that is not more than 6 floors in height – condo units in authorized condominium development sites included in the Planning Act – a lease contract on a restricted residential property; the term should not go beyond seven years

Expatriates who want to own all units in an apartment or condominium in an accredited development site have to have prior sanction from Singapore’s Minister for Law.

In the same vein, a foreign national who has no prior approval from Singapore’s Minister of Law cannot own residential properties that are classified as restricted.

The following are considered restricted residential properties by the Residential Property Act of Singapore:

- a vacant residential lot – town houses, separate or semi-detached homes, or terraced houses built on residential lands – lots not authorized for condominium development under the Planning Act

In applying for an official sanction to be able to acquire a restricted residential property, the foreign national must fill out a form and, along with the required supporting papers, send this to the Singapore Land Authority. The Singapore Land Authority is responsible for appraising and issuing approval for the merits of an expatriate whether he or she will be qualified to acquire a restricted residential property.

Usually, when the media splashes reports on banks raising home loan interest rates in and their impact on Monthly Installments, you deem it better to select fixed home loan rates. In fact, your banker may also suggest you to go for the same.

Now ideally as it should be, we assume that once you select fixed rate plan for yourself the rate of interest will continue unchanged for the entire period you have fixed the interest rate for irrespective of any subsequent increase in the same. But actually this is not necessarily the case.

Here we demystify the nature of fixed interest rate housing loan transaction for you so that you can make an informed decision over the subject.

* Check the small print of a loan. The bank has the right to give you 30 or 60-days notice that it intends to increase its rates.

* The bank’s first-year rates are binding on the bank only for that short period of 1 or 2 months. The 2nd-year home loan rates are not binding at all. Neither are the bank’s 3rd-year loan rates.

* Force Majeure Clause

So, while you read your home loan agreement papers, you can spot statement like this:

“Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.”

This is called Force Majeure Clause that enables the bank to undertake appropriate changes in the interest rates on home loans they sanction to their borrowers.

So remember to look at refinancing every couple of years so that you do not pay too much. If you select a good housing loan company you can save a lot of money over the life of your housing loan and in most cases the consultation cost is free.

Current Mortgage Interest Rate

It is definitely a positive indication for you to explore refinancing when your current interest rate is higher than available home loan packages on the market. A first step to take is to go back to your existing banking company or financial institution and ask them to revise your package, otherwise known as repricing. If your lender comes back with an offer, it will normally be better than your existing one. You can then compare this offer with offers from other lenders to see whether you should switch or stay put.

Lock-in and Clawback Periods

When you take up a housing loan, there may be a lock-in period where your housing lender will charge you a penalisation fee, commonly a percentage of your outstanding loan value, if you were to fully repay your mortgage. Almost all loans also come with a clawback period where the lender will claim back “freebies”, such as legal subsidies, that they “gave” you when you take up your loan (Note: lock-in period is separate from clawback period). It may not be valuable for you to refinance due to such costs.

Loan Quantum

The larger your home loan amount, the greater your savings for the same reduction in interest rates. For instance, 1% on a loan of S$100,000 is much less than 1% on a loan of S$500,000. However, fixed cost to refinancing, which represents mainly of legal fees, do not vary much with loan quantum. The difference between your current and refinancing interest rates, therefore, has to be bigger for a comparatively smaller mortgage as fixed cost eats into a more fundamental part of your interest rate savings.

Perceived Interest Rate Movements

Your view on how interest rates is moving can be a factor when thinking whether you should refinance. If you are currently on a fixed rate package and believe interest rates are dropping, you may want to refinance to a floating rate package. Conversely, if you are on floating rates and believe interest rates are rocketing, converting to fixed rates may be a positive choice.

Individual Financial Appraisal

If there is a change in your financial state, you may want to vary your package details via refinancing. For example, you are beginning your own business and do not want volatility in other areas. Give some consideration to taking up a fixed rate package. Maybe you want cash to invest in another property. Consider increasing your loan quantum. Or your monthly income has increased and you want to minimise interest loan payments. Consider reducing your loan tenure.

If looking through this article is giving your a headache or you simply want to save yourself the trouble, contact us for a non-obligatory mortgage interview. Our professional consultants not only frees up your time but also do not charge any fees to help you get the best deal. Refinancing does not have to be a tedious procedure.