I guess we were born to know the answer. That's why you should shop around before you sign a rate adjustment offer from your bank. That's probably why you stumbled upon this blog post.
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For those new to mortgage lending, repricing means renegotiating your home loan package with your current lender after the lock-in period ends, as opposed to refinancing your mortgage with another bank. So you "recalculate" the loan. Since the loan stays with the same bank, there is no need to hire a lawyer to deal with the legal paperwork again, so there are no legal fees or appraisal costs involved. In terms of load, it is the easiest, but in everything in life, the easiest path is not always the right one.
In fact, there will always be another bank that will woo you with a lower rate. This is the beauty of free market competition. Those of us old enough to remember what airfares were like before the internet and budget airlines can attest to that! Free market competition combined with the digital revolution has been one of the main disinflationary forces this century, which explains why inflation will remain subdued until 2021-22.
When supply is limited, such as residential real estate or commercial stores, prices will rise. Prices can also rise when service providers have limited supply. The same applies to mortgage loans. When it comes to something as expensive as mortgage interest (the typical homeowner pays $18,000 a year in interest at a long-term average rate of 2.50% on a $750,000 loan), the more banks the better! That's a good enough reason not to change the price, but keep switching banks until you get out of the lock. Not only will you help keep competition in Singapore's small mortgage market (some banks have exited the market), but you'll definitely save a decent amount of money over time instead of carrying it around in the bank.
How much do you want to save? We estimate that you will save at least 0.20% on your outstanding loan each time you refinance. So for an average loan of $750,000, that's $1,500, enough to keep your family at home for a vacation or even a short trip. Is all the effort of applying and submitting documents to a new bank worth it? Let me answer this question indirectly with an analogy. Let's say you buy $150,000 in 12-month deposits today at the best interest rate, and giving up $1,500 in savings is like choosing a 3% FD rate when you can actually choose to pay yourself 4%. Is it worth the effort?
All of this can add up to more than $15,000 over the course of a 30-year mortgage and 10 rounds of refinancing, saving almost a full year on your mortgage payment.
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We estimate that every time you refinance, you earn at least 0.20% of your outstanding loan (interest savings). So for an average loan of $750,000, that's $1,500, enough to keep your family at home for a vacation or even a short trip.
By the way, what many people may not realize is that with the digitization of the banking sector, the entire mortgage application process has been greatly improved and is now simple. All that's needed is a singpass online registration link on MyInfo, plus one or two other documents such as a mortgage statement and payslips. Please contact us for more information.
That's not all. In addition to interest savings, there are other important factors to consider when planning a mortgage. When was the last time you couldn't afford a lower mortgage rate because you were still locked out? Most homeowners don't realize that "locking in" is another form of paying a price that can cost a lot more than the total price you think you're getting. Especially codeBreakthrough year2019-2020 and the current 2022-2023.
That's why working with the right mortgage professional to get the right advice is key when you're looking to refinance instead of repricing. The bank's pricing people are just there to sell you the bank's current package. They won't be able to give you a positive view of what to do at different times in the interest rate cycle.
To give you a clear idea of all the differences between refinancing your mortgage to another bank or simply rescheduling your current mortgage, we'll summarize it for you here:
| when you refinance | when you change the price | |
|---|---|---|
| effort | There is no need to call the bank as long as you are outside the commitment and recovery period (usually >3 years). | You should call the bank and wait for the best offer |
| file submission | Requires submission of latest income documents via MyInfo | It is not necessary to submit any documents |
| interest savings | Typically enjoy a discount of 0.1-0.2% or more | It usually does not get the lowest price on the market |
| first player advantage | The broker will remember you 4-6 months in advance. The ability to secure mortgage interest in advance, especially in years of a highly volatile cycle | Banks can usually only offer within 3 months of expiry. Most were late because they acted only after receiving the rate change letter. |
| Advice based on interest rate cycles | MortgageWise.sg Consultants are based oninterest rate cycle- You have the best chance to "stay ahead". | Bank clerks usually sell you packages of one bank, so few can give real advice based on market and interest rate cycles. |
| Accept MWL or Term Loan (private properties only) | Refinancing is the best point to prepare so that the locks match and there are no additional legal costs, which are mostly covered by the bank's legal deduction | An additional $1,500 to $2,000 for legal fees without a grant to cover costs |
| Relationships with trusted advisors | Get the latest mortgage rates from a trusted advisor whenever you or your family need to check with just a text | Every two to three years you have to repeat the effort of Googling, researching, talking to different people and deciding who to trust. |
| Other benefits (promotions) | Enjoy the best promotions, rewards, vouchers etc. as a new customer of the bank and usually have a bigger marketing budget to acquire new accounts. Not only that, but the new bank will allow you to discover new mortgage features that you may not have known about. eg Sales penalty waivers, premium banking benefits, interest leveling accounts and more. | As an existing bank user, you are not entitled to promotional gifts. |
Of course, this article may sound selfish and I don't deny that. But the views expressed are objectively correct and will be corrected.
No bank and no profit-driven company likes existing customers bleeding to another bank. But enlightened companies would do well to realize two things - first, that the information age and its inflationary effects are unstoppable, as I have already explained. As long as homeowners have to compare mortgage rates, comparison sites and brokers like us will continue to fill the void. Second, banks and companies also have the opportunity to focus on retention rates, which is the essence of a free market. The consumer is the ultimate winner here. As a consumer, you must exercise this freedom of choice.
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Waiver: MortgageWise.sg strives to bring the best insight and knowledge of our mortgage experts to the market. However, all opinions expressed on our blog remain the opinions of the authors and should not constitute financial advice. We cannot be held responsible in any way for any financial loss arising from your mortgage decision if you choose to rely on any of our views and opinions.
FAQs
Refinanced or refinanced your mortgage? ›
Refinancing the mortgage on your house means you're essentially trading in your current mortgage for a newer one – often with a new principal and a different interest rate. Your lender then uses the newer mortgage to pay off the old one, so you're left with just one loan and one monthly payment.
What is a refinanced mortgage? ›Refinancing the mortgage on your house means you're essentially trading in your current mortgage for a newer one – often with a new principal and a different interest rate. Your lender then uses the newer mortgage to pay off the old one, so you're left with just one loan and one monthly payment.
Can you refinance a refinanced mortgage? ›You can refinance your mortgage as many times as it makes financial sense to do so. The only caveat is that you might have to wait six months from your most recent closing (whether it was a purchase or previous refinance) to do it again. Also, remember that refinancing includes closing costs.
Should I refinance if I just refinanced? ›Have interest rates lowered since you got your refinance? You may want to refinance again to take advantage. You can almost always save money if you're able to lower your interest rate without changing the term of your loan. Just a small change in your interest rate can save you hundreds, or even thousands, of dollars.
Why do you get your house refinanced? ›Why Should I Refinance My Mortgage? Refinancing can allow you to change the terms of your mortgage to secure a lower monthly payment, switch your loan terms, consolidate debt or even take some cash from your home's equity to put toward bills or renovations.
When can a house be refinanced? ›In most cases, you may refinance a conventional loan as soon as you want. You might have to wait six months before you can refinance with the same lender. But that doesn't stop you from refinancing with a different lender.
Can a refinanced house be sold? ›You can, technically, sell your home immediately after refinancing, unless your new mortgage contract contains an owner-occupancy clause. This clause means you agree to live in your house as a primary residence for an established period of time.
What should you not do when refinancing? ›- Don't forget to do your homework. ...
- Don't assume you're getting the best deal. ...
- Don't fail to factor in all costs. ...
- Don't ignore your credit score. ...
- Don't neglect to determine your refinance breakeven point. ...
- Don't refinance too often or leverage too much home equity. ...
- Don't overreach.
Yes, you can refinance a personal loan, perhaps to get a better interest rate or more affordable monthly payment. To refinance a personal loan, you'll simply take out a new loan to pay off the old one — which means you'll have both a new rate and repayment term.
Does refinancing lower your mortgage? ›One of the primary benefits of refinancing is the ability to reduce your interest rate. A lower interest rate may mean lower mortgage payments each month. Plus, saving on interest means you end up paying less for your house overall and build equity in your home at a quicker rate.
At what point does refinancing not make sense? ›
Refinancing to lower your monthly payment is great unless it puts a big dent in your pocketbook as time goes on. If it costs more to refinance, it probably doesn't make sense. For instance, if you're several years into a 30-year mortgage, you've paid a lot of interest without reducing your principal balance very much.
Does refinancing affect anything? ›The main benefits of refinancing your home are saving money on interest and having the opportunity to change loan terms. Drawbacks include the closing costs you'll pay and the potential for limited savings if you take out a larger loan or choose a longer term.
Can you move if you just refinanced? ›An FHA loan refinance requires homeowners to live in their residence for at least one year after refinancing. If you plan to rent your home out after refinancing, you can do this with an FHA loan but you will likely need to wait a year, as per the terms of your mortgage.
Is refinancing a house a smart idea? ›More specifically, refinancing makes sense if you can lower your interest rate by one-half to three-quarters of a percentage point, and if you plan to stay in your home long enough to recoup the closing costs that taking out the new mortgage incurs.
What are 4 reasons why someone would want to refinance their loan? ›- You want a lower interest rate. ...
- You want a loan to suit your needs. ...
- You want a fixed rate home loan. ...
- You're paying off your other debts. ...
- You're renovating. ...
- You want to invest. ...
- Refinancing your home loan to us. ...
- About this article.
“A fight over raising the debt ceiling is likely to drag into the summer, and mortgage borrowers should expect rate volatility as a result.” Mortgage Bankers Association (MBA). “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
Can I buy another house right after refinancing? ›How soon after refinancing can I buy another home? If you plan to buy a vacation home or an investment property, you can buy as soon as your refinance closes and you have the cash in hand. However, you cannot buy a separate primary residence using a cash-out refinance and then move into it right away.
Do you lose equity when you refinance? ›In short, no, you won't lose equity when you refinance your home. Your home's equity will fluctuate based on how much repayment you've made toward your home loan and how the market affects your home's value.
Can you cash-out refinance a home you own? ›Cash-out refinance
When you already own your home outright, you aren't paying off an existing mortgage. So most or all of the loan will come to you as a lump sum of cash. You can typically borrow up to 80% of your home's value using a cash-out refinance.
If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. If you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract.
Does refinancing look bad on credit? ›
Whenever you refinance a loan, your credit score will decline temporarily, not only because of the hard inquiry on your credit report, but also because you are taking on a new loan and haven't yet proven your ability to repay it.
Does refinancing a loan look bad? ›Overall, refinancing personal loans may lead to a minor drop in your credit scores due to the hard inquiries from the applications and opening of a new credit account. Over time, your scores may recover and then increase if you continually make on-time payments on your new loan.
Why does refinance cost so much? ›Why does refinancing cost so much? Closing costs typically range from 2 to 5 percent of the loan amount and include lender fees and third-party fees. Refinancing involves taking out a new loan to replace your old one, so you'll repay many mortgage-related fees.
Is a refinanced loan a new loan? ›Refinancing a loan is when a borrower replaces their current debt obligation with one that has more favorable terms. Through this process, a borrower takes out a new loan to pay off their existing debt, and the terms of the original loan are replaced with an updated agreement.
Which mortgages can be refinanced? ›Conventional, FHA, VA, and USDA mortgages are eligible for rate-and-term refinancing. You'll need a certain credit score, debt-to-income ratio, and amount of equity in your home — but the exact requirements will depend on which type of mortgage you have.
Are refinanced loans still federal? ›You can refinance student loans, but only with a private lender. You can't refinance student loans through the federal government. You can consolidate federal student loans, but federal consolidation won't lower your interest rate or save you money.
Why is refinancing so difficult? ›The most common reason why refinance loan applications are denied is because the borrower has too much debt. Because lenders have to make a good-faith effort to ensure you can repay your loan, they typically have limits on what's called your debt-to-income (DTI) ratio.
What is the monthly payment on a $100 000 home equity loan? ›Loan payment example: on a $100,000 loan for 180 months at 7.30% interest rate, monthly principal and interest payments would be $915.68 over the full term of the loan. Payment example does not include amounts for taxes and insurance premiums.
Is 4.75 a good mortgage rate? ›Is 4.75% a good interest rate for a mortgage? Currently, yes—4.75% is a good interest rate for a mortgage. While mortgage rates fluctuate so often—which can affect the definition of a good interest rate for a mortgage—4.75% is lower than the current average for both a 15-year fixed loan and a 30-year mortgage.
Can I refinance without losing my interest rate? ›You don't need to change your rate or term when you refinance – you can also take money out of your home equity with a cash-out refinance. You accept a higher principal loan balance and take the difference out in cash when you take a cash-out refinance.
How much does 1 percentage point save on a mortgage? ›
Each mortgage discount point typically lowers your loan's interest rate by 0.25 percent, so one point would lower a mortgage rate of 4 percent to 3.75 percent for the life of the loan.
Can I be removed from a mortgage without refinancing? ›If you can't refinance your existing mortgage, your lender may require you to pay off the loan in full in order to remove someone from a mortgage. This closes out the loan and removes your name as well as any co-borrower or co-signer from the mortgage.
Can I move my mortgage to another bank without refinancing? ›Yes. Federal banking laws and regulations permit banks to sell mortgages or transfer the servicing rights to other institutions. Consumer consent is not required.
What is an example of refinancing? ›Example of Refinancing
Because of economic conditions, interest rates drop. The couple reaches out to their bank and is able to refinance their existing mortgage at a new rate of 4%. This allows Jane and John to lock in a new rate for the next 20 years while lowering their regular monthly mortgage payment.
You can get a lower interest rate.
The biggest reason to refinance is the opportunity to lower your interest rate. Whether your credit has dramatically improved since you first secured your mortgage or the market has changed, access to a lower interest rate can save you loads of money over the course of the loan.
Refinancing doesn't reset the repayment term of your loan, but it does replace your current loan with a new loan. You may be able to choose from different offers for your new loan depending on your goals, including a longer or shorter repayment term.
How much equity do you need to refinance? ›The 20 Percent Equity Rule
When it comes to refinancing, a general rule of thumb is that you should have at least a 20 percent equity in the property. However, if your equity is less than 20 percent, and if you have a good credit rating, you may be able to refinance anyway.