4 Things To Know Before You Refinance Your Home Loan

PropertyGuru Editorial Team
4 Things To Know Before You Refinance Your Home Loan
As a home owner, you’re no stranger to home loans. Chances are you’ve talked to real estate agents, compared interest rate packages, and taught yourself various property terms. One thing you’re not so sure about is refinancing.
Refinancing is a golden opportunity for you to save money on your home loan without having to cut back on your usual spending habits. But before we get into the process of refinancing, here are 4 things you should do to optimise savings.

Start with a Mortgage Refinancing Calculator

Financial products can seem complex to most of us. In reality, these tools are easy to use and offer a wealth of information. When it comes to refinancing, all you need is a mortgage refinancing calculator to help you decide whether it makes financial sense to switch your home loan package. And if it does, the mortgage refinancing calculator lets you know exactly how much money you could be saving. So, if you’re thinking about refinancing your home loan, a mortgage refinancing calculator is the first place to start.
Find out how much money you can save on your home loan with PropertyGuru’s Mortgage Refinancing Calculator.

Compare interest rates: Floating rate versus fixed rate

A floating interest rate fluctuates, while a fixed interest rate remains constant. If you are thinking of choosing a floating interest rate, be prepared for your monthly home loan payments to increase slightly during the new lock-in period.
It’s also important to understand that fixed interest rates usually charge a premium compared to floating interest rates because the bank takes a risk in guaranteeing the interest rate. As a result, they need to factor in a buffer amount into the fixed interest rate to avoid making a loss. That being said, fixed interest rates can sometimes be cheaper compared to floating interest rates, especially if the bank is running a promotion. This makes shopping around for the best interest rates even more important for anyone who is refinancing.

Shop for the best refinancing deal

If there’s a refinancing package that offers the lowest interest rate in the market, why doesn’t everyone sign up? One reason could be that shopping for a good refinancing deal isn’t that simple. The conventional way of thinking is that you have to go to 7 different bank websites to compare home loans, compile their rates and terms onto an Excel sheet and then try to make sense of it all.
But what if you didn’t have to go through all that hassle? What if you could access all the relevant information on a single page to quickly find and compare your refinancing options? That’s exactly what you’ll get when you use PropertyGuru’s Refinancing Comparison Tool.
The tool is simple to use, just enter your loan amount, type of property, loan tenure and current interest rate. Wait a few seconds and the calculator will give you the best refinancing deals relevant to your criteria. The Refinancing Comparison Tool can also help you calculate how much money you can save over the next 2 years.

Opt for a lock-in period

When you’re refinancing, you’ll have 2 options: To lock-in or not to lock-in. Put simply, having a lock-in period is like being tied to the same telco by a legally binding contract, whereas not having a lock-in period is like a SIM-only plan. No lock-in period gives you the freedom to switch to another home loan without incurring a penalty fee. So, the question is, should you refinance with a lock-in period or without a lock-in period?
Home loans with a lock-in clause usually offer better rates because the bank has a guarantee that you will be their customer for the next 2 years. Without a lock-in clause, you can leave the bank whenever you would like to refinance again. As a result, they might not be able to cover the administrative cost of underwriting your home loan. So, to compensate for that risk, the bank charges a higher interest rate.
Given that you’ll get a better interest rate with a lock-in period, the only reason to consider a home loan without a lock-in period is if you are biding your time for an upcoming promotional interest rate.
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