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Time to review or refinance our housing loan to lock in at a lower rate

27 May 2013 
SOURCE: Patricia Hung
The property cooling measures adopted in Jan 2013 had led to a drop in the number of property transactions, will banks start raising the housing loan rates to boost their earnings?
 
Recently, most of the banks have increased the car loan rates by 43% from 1.88% to 2.68%. The move by banks could be mainly due to an expected substantial drop in interest earnings from car loan as a result of the Feb 2013 curbs on car loan limit and loan tenor.
 
As housing loan is a bigger commitment compared to car loan, it may be time to review or refinance our housing loan to ensure that we lock in at a competitive interest rate earlier.
 
What are the steps involved when reviewing your housing loan?
 
Firstly, get an update on the interest rate you are paying for your housing loan currently from your monthly loan statement. If you are paying anything more than 2%, you may need to review your housing loan.
 
For a loan of $500,000 over a 30-year loan tenor, based on the housing loan rate of 1.23% currently offered by banks, the total interest costs for the first year alone is $6,091 and for the first three years is $17,760. If you are paying 2% on your housing loan and able to lock in at the lower 1.23% rate, this would translate into interest savings of $3,831 for the first year alone and a total savings of $11,265 for the first three years.

Based on an example for a 30-Year Loan of $500,000



Secondly, find out from your existing bank whether you are able to re-price your current rate to a lower rate.  You may also check and compare with other banks for more competitive packages.
 
Next, review your plan for the property and the housing loan, eg. whether there is a possibility of selling your property in the near future or paying down the principal. This will allow you to decide whether you are able to settle for a package with prepayment penalty or those without any penalty. If you have plans to reduce your principal, this may be a good time to do so before you start on a new package, especially so, if the new package comes with prepayment penalty.
 
Another thing to note is the cost of refinancing a home loan to another bank, which is the legal fee. Currently, except for a few banks, most banks do not offer to pay for your legal fee anymore. In this aspect, you may need to ensure that there is interest savings to cover the cost.
 
Lastly, when comparing home loan rates, most home owners would go for the more competitive rates for the initial years, eg. for the first three years. It will be ideal if you can find a package that also offer competitive rates for the longer term. This will help minimise the need to review and refinance your housing loan every now and then, and thus saving in costs.

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