Refinancing, Remortgaging and Repricing 101

home loan refinancing

What is Refinancing?

Refinancing is the replacement of an existing old debt obligation plan with a new debt plan provided by a new lender. A common reason why people refinance is to take advantage of a better financing plan and hence lower your interest cost and monthly repayments.

 

What is Remortgaging?

Remortgaging is related to the refinancing of a mortgage loan. A remortgaging can apply to a HDB loan, residentiatial private housing loan, commercial industrial property loan and overseas property mortgages.

 

What is Repricing?

Repricing is the renewal of your existing interest plan with your existing lender. If you are out of your lock in period, your lender or bank may offer you a new promotional interest rate package over the next 2 - 3 years. Consider if the new interest rate plans are competitive with other market offers. You may wish to consider remortgaging or refinance your loan if there is a better deal from another lender. Some banks also provide legal subsidies for remortgaging your mortgage over to them.

 

When should you Refinance or Remortgage? 

1) Review your current interest rate plans, needs, priorities

Your financing plan may have been taken up a few years back when your needs, requirements and priorities were different.

Examples of refinancing and remortgaging scenarios:

  • From HDB Loan paying 2.6% to a HDB bank loan at 1.2%
  • Refinance your private property home loan to a new lower promotional interest rate package
  • An existing overseas mortgage financed by its local lender refinanced to a Singapore based bank
  • A refinancing of your commercial property loan to enjoy lower interest rates and savings
  • Business Term Loan to a Property Term Loan
  • Business Term Loan to Micro Loan
  • Business Term Loan to Machinery and Equipment Loans
  • Credit card fund transfer or cashline at 6% to an equity term loan at 1.5%
  • From Letter of Credit/Trust Receipt to a Business Term Loan
  • From Variable Rate pegged to a Fixed Rate Pegged
  • Overdraft to Term/Equity Loans
  • Unsecured Loans  to Secured Loans
  • Changes in Economic and interest rate policies
  • Changes in Industry life cycle
  • Changes in Business Model and Requirements
  • Required an increase in loan amount which your new lender can provide you with
  • Improvement in credit ratings to qualify for better financing plans and instruments

 

2) Consider the money and interest savings

Example. Mr Tan currently pays 2.5% interest on his mortgage with Bank A. A new lender has offered to refinance and take over Mr Tan's mortgage at a new promotional interest rate of only 1.50%. The new lender also offers Mr Tan additional legal subsidy of up to $2500 to offset the legal cost in transferring over his mortgage.

Lets take a quick summary look at the interest savings based on Mr Tan's outstanding mortgage loan of $500,000 over a 25 years loan tenure:

@ 2.5% is ~$12,335 per year

@ 1.5% is ~$7,386 per year

Interest savings of ~$4949 per annum.

 

Lets take a quick summary look at the principal savings based on Mr Tan's outstanding mortgage loan of $500,000 over a 25 years loan tenure:

 

@ 2.5% is ~$14,583 per year

 

@ 1.5% is ~$16,610 per year

 

Principal savings of ~$2027 per annum.

Based on the above illustration, the total interest and principal savings could amount to close to $21,000 over the first 3 years.

 

3) Consider the cost and penalties

Will I incur any cost in refinancing my loan or mortgage? Am I still within the lock in period and incur penalties and claw back of subsidies. Banks may claw back the legal subsidies if you have been with them for less than 3 years while a few may even take back the fees provided for your fire insurance and valuation for your property.

A clear picture of your Needs Vs Cost Vs Savings Vs Benefits would present you with a clearer picture of the value proposition of refinancing your loans / mortgages. A breakeven analysis of your Cost Vs Savings may also be helpful in helping you to conclude a better decision.

Contact us today for a profiling of your needs and a discussion of the finest financing solutions for your and your business. Loan brokerage solutions to bring you Savings and Smiles.