Refinancing

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As interest rates are constantly changing, a good rate five years ago may not be a good rate now. Why not consider refinancing, especially when interest rates go down? It will also an opportunity to replace your existing home loan with a new one that may be a better fit for you.

There are many reasons to refinance:

Lower Your Monthly Payments
- There are different ways of achieving lower monthly repayments. You can switch to another loan type, such as from a fixed-rate loan to a floating-rate one. Alternatively, you can consider extending the tenor of your loan. However, bear in mind that while your monthly repayment would go down if you were to extend your loan tenor, you will end up paying more in interest expenses over the duration of the loan.
  
  To see if it makes sense to refinance your loan, try our Loan Refinancing Calculator.
Pay Off Your Mortgage Faster
- When you reduce the interest rates on your existing loan, you reduce the interest component and increase the principal component of your monthly instalments. Thus, you will pay down your loan principal over a shorter tenure .
  
  When you reduce the interest rates on your existing loan, you also reduce the interest component and increase the principal component of your monthly instalments. Thus, you will pay down your loan principal over a shorter tenor .
  
  On the same note, if you would like to shorten your repayment schedule by reducing your loan tenor and can afford the increase in monthly instalments you could save a significant amount of money by reducing the interest that you will pay over the full duration of the loan. Although this may mean higher monthly repayments, you will own your home faster and be free of mortgage debt sooner.
“Cash Out” from Your Home Equity
- This may be a good opportunity to get more out of your property. If you have already paid down a portion of your loan principal, you may be able to borrow from the available equity in your property to finance other expenses such as for your child’s overseas education, home improvement or paying down a higher interest rates loan to obtain higher interest rates savings.

Depending on the terms of your existing mortgage, you may face prepayment penalties or subsidy clawbacks when you refinance. It usually makes financial sense to refinance if you can get an interest rates that is lower than the rate you are currently paying.

You may wish to consider the following issues to determine if it is the right time to refinance your home loan:

What is the remaining tenor on my existing home loan?
How long do I plan to reside in my home or hold it as an investment?
How much lower will my monthly instalments be after refinancing?
Are there any upfront costs for refinancing?
What is the current economic value of my home?

When you refinance, you will go through many of the same steps as you did when you had applied for your initial home loan to purchase your property. You will choose a bank, select a type of loan, determine the loan tenor and find a good interest rate, all while keeping your financial needs and goals in mind. Your credit will be evaluated again when you refinance.

Refinancing is a strategy which requires careful consideration before you can really know if it is the right choice for you. Every financial situation is different and only you know the plan that will work best for you. When deciding to refinance, it is important for you to consider the costs and benefits of refinancing.

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Refinancing

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