Mortgage planning is an often neglected process in Singapore even though committing to the wrong mortgage might bring some dire financial consequences especially when you are locked in for a period of time with the wrong bank.
I hope through reading this blog more Singaporeans will come to know what a good professional mortgage consultant (or broker) can do for them which is more than just simple comparison of home loan rates. Of course that alone already saves them huge amount of time and effort in calling the banks one by one and being asked to wait for a call back (if they do call back at all).
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I have to re-iterate “good mortgage broker” here as there are also brokers out there, not unlike bankers who sell investment products, who just peddle loans to serve their own interests. Over at MortgageWise, I take pride in letting you know that me and my team here have on so many occasions ask clients not to refinance but reprice with their existing banks even though that means we do not earn any referral fee. We rather look longer term and build that relationship and trust with clients, choosing always to put their interests first!
Let us now take a look at a snapshot of the 10 things you need to look at before you sign on the dotted line to refinance the loan to a new bank. This serves as an overview. I will cover in greater details some of these important points in subsequent posts. So do watch this space.
1. Take stock regularly – refinancing early to lock-in lower rates
Some of the clients who approach us come to us for refinancing only when they receive a letter from the bank announcing their mortgage interest rate will go up from next month, usually quite significantly as their lock-in expires and the spread goes up. Even if they could get a loan approved immediately, they will end up paying minimum 3 months higher interest due to the notice period required to redeem a loan in full.
This situation can be avoided if you have a good and reliable mortgage advisor who takes stock regularly for you and knows when your lock-in will end and calls you at least four month prior. In fact most are not aware, technically you can even lock down rates today as early as up to 7 months which makes a lot of sense in an environment when rates are going up. Talk to us today to find out more how this can be done.
2. Get a repricing offer and remember to negotiate
If you speak to some mortgage brokers out there, they will not want you to do this. In fact they might even dissuade you from repricing (taking another loan package from your existing bank) as it means they will have no business from you. Repricing is out-of-bounds to mortgage brokers as banks have a separate department that handles customer retention.
At MortgageWise that is the first thing we will ask you to find out, if you have not already done so. In fact we go one step further – we ask clients to try and bargain with their banks and see if they could negotiate down the 1stoffer further. This is a classic business conundrum – companies or banks in our case always give a better deal to acquire a new customer than what they would offer their existing loyal customers. So you might be a little naive to think that it pays to stay with the same bank. It does sometimes but most times it does not. And there is always another bank which is hungrier for your business to offer you something better.
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3. Use a mortgage broker
No we are not self-serving here but the truth is – it really does pay to use one, a good one that is. We have seen many who just repriced their loan without using a mortgage broker or even making some calls to a few banks to check on market rates. They just stay on with their existing bank without checking. We have covered that in point 2 – they most likely shortchange themselves. And remember a good mortgage broker would not only show you which bank has the lowest rates, but what other beneficial features some might offer like an interest offset account.
4. Make sure there is no penalty and no legal fee (and valuation fee) clawback
Most people remember the lock-in period for their home loans but forgot there is another “lock-in” – legal fee clawback. In Singapore this tends to be three years which means your rate may go up after 2 years of fixed rate but if you refinance out to another bank in year 3, you will be asked to pay back the legal fee subsidy which you have taken from the bank earlier (if applicable)
5. Breakage fee
Again many are not aware some banks here levy a breakage fee if you do not redeem your loan on the exact rate-fixing date of your sibor period or what some call an interest period. This can be an exorbitant fee of 1.5% of the loan amount redeemed, which is your whole outstanding loan.
6. Dress up
Before you could get your new loan granted you might need to do a bit of “dressing up” of your TDSR (Total Debt Servicing Ratio) if it is slightly over the limit of 60% or if you want a bigger loan like a cashout. This might mean paying down some of your other debts especially for those who have rolled over on their credit card or revolving credit lines. And it might be a good idea to do it early like a month or two so that it shows up as fully paid on your credit bureau report.
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7. Print out your own Credit Bureau report
Some of you might even want to print out a copy of your own credit bureau report at a small costs ($6.42) and take a look at your credit score (is it a AA, BB etc or a HH which is almost a death sentence for any loans in Singapore). To do that click here. The report is quite comprehensive and actually explains quite clearly how to read the score.
8. Do some scenario planning
This is a big topic in itself but before you could decide on which bank and what mortgage peg to use, it might be good to run some numbers and see how badly you will be hit if sibor rise to a particular level say 3% p.a.
9. Plan ahead – decoupling
Unless the rules change, you might want to make use of refinancing to do a “de-coupling” on the mortgage loan or even on your property title. For the latter you will need to pay slightly higher legal fees than just pure refinancing but still it will bring some savings doing it together with the refinancing (especially if you use our partner law firms with special rates offered to all MortgageWise clients). De-coupling means taking one spouse’s name out of the mortgage or out of the title. If the income of one spouse is sufficient to support the loan, there is no need to have both names on the mortgage. That way the outgoing spouse is free to take up another loan as a 1st mortgage and hence get 80% loan-to-value (LTV) for a 2ndpurchase (otherwise the LTV is reduced to 50% for 2nd mortgage and 40% for 3rd mortgage onwards).
10. Plan ahead – how to stretch your loan tenure
For those buying a new private property, the current rule has it that in order to obtain maximum leverage of 80% LTV one needs to keep the loan tenure below 30 years or not to exceed age 65. This often restricts a middle-age couple of income-weighted age 45 years to a loan tenure of no more than 20 years hence a much higher monthly repayment. There is a way to get around this but it requires you not getting yourself into any lock-in period for your 1st loan. Speak to us today to find out more.
I hope the above list will give you a good idea what else to consider in refinancing besides choosing the best home loan Singapore rates.
Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to refinance home loan with us in the end notwithstanding the sheer number of brokers and agents out there.