By: Zeng Han Jun, CPCG, Singapore

Every housing loan product has its own set of terms and conditions. The loan product that you take up is of course, underwritten by your lender, therefore the terms and conditions are to your lender’s favor, not yours. After all, they are the ones taking up the risk by lending you the sum of money to buy your dream house ,and that is the least, they can do to mitigate the risk. Ten out of ten banks will underwrite their home loan in the same manner, to protect themselves, but does that mean as a consumer, you can do nothing about it? The least that you can do is to pay attention to the details, as they always say “The devil is in the details.”

Being alert to the terms and conditions of your existing home loan can prevent nasty consequences to you in the future when you refinance. Each and every housing loan product that has been underwritten, has its own set of terms and conditions. These clauses can actually restrict you from performing certain actions with your home loan and if you do, you might get lashed with monetary penalties. Nobody wants that to happen, unless there is really no choice.

The bank wants you to stay with them as long as possible. The longer you stay with them, the more interest they can earn from you. That is of course very beneficial to them. Some banks may not want your business even after you have told them that you are going to refinance to another bank. There is a reason for it but I will leave it to another discussion. When you refinance, your business relationship with your lender ends and the clauses underwritten with your existing housing loan are just to prevent that.

Sometimes, the next housing loan product that you are looking at, is just too attractive. It may be able shave off to more than over 100 basis points! It gets so attractive that you forget about the clauses of your existing home loan. What happens is that you get penalized by the bank and have to pay them a sum of fees before you can refinance. After paying that sum of penalty, you start to cool off from the notion of shaving away 100 plus basis points and think “Hey, after paying the penalties to XXX bank, it might not be such a good idea to refinance at all!”

There are several methods to prevent this from happening:

Be aware of the clauses

Read the details. The housing loan contract, also known as the “Letter of Offer” comprises of different sections. You may not have to read all of it, but do pay attention to the more important sections to determine your standing and your options. Your housing loan may be your largest ticket item that you may have, in your entire life. It is therefore logical and sensible to pay the most attention to it.

Engage the service of a mortgage adviser

The mortgage adviser can be your mortgage consultant or mortgage broker. They can help you determine your different logical ways of exit from your existing housing loan, and effectively direct you to the best home loan product for your credit profile. Best of all, their service is free and engaging them does not increase your closing cost at all. Their service is also especially useful when you need to have independent third party advice on your refinancing option.

Remember, before taking any action with your existing housing loan. Talk to a mortgage specialist who can truly guide you to make an informed decision. If not, at least make the effort to read the contract. Such measures can definitely reduce your risk with whatever action you may perform with your existing home loan.

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