When to refinance your mortgage?

By: Zeng Han Jun, CPCG, Singapore

Thinking of getting yourself a whole new home loan? If so, when will it be appropriate to carry out this application? Amid all the uncertainty in the banking and finance industry, should you even contemplating a move to refinance? Here are several tips to assist with in deciding whether a new home loan is for you.

There are many different kinds of reasons for refinancing a home loan, and getting a lower interest is merely one of them. There are some who wants to consolidate their bills and debts, while other do it because they want to borrow against their house. Both of these reasons prompt people to refinance even though they do not qualify for a lower home loan interest rate.

Why would anyone want to borrow against their house? Sometimes you might want to undertake a purchase of a new property overseas while enjoying the low interest rates over here in Singapore. It might also be that you are eyeing a particular investment and if you have enough equity in your house, you might want to release it to fuel your investment. Other times, it might be that you have gotten someone to short sell his property to you and might want to borrow against current higher valuations to renovate your new purchase.

Of course, the most basic reason for refinancing your home loan is to enjoy interest rate. There is an unspoken rule among home owners stating that refinancing is only feasible when the interest rate difference makes up to be about two hundred basis points, which is two percent. You do not need to wait for the difference of two percent in order to refinance. Every home loan must be assessed individually and very often, the savings start to kick in even when the difference is not two percent.

Make an analysis on how a refinancing of your home loan can benefit you. Do not dwell too much on issues such as whether a bank is strong enough to hold itself up during the credit crisis. While you are thinking, the banks are earning from you. Remember, every single cent paid to the bank as interest has zero probability of it returning back to you in the form of money. Refinance, save on the difference and keep it for other reasons which I am sure, will be more fruitful to you then paying it as interest.

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