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Interest Rates Are Going Up. Should I Be Refinancing My Mortgage As Soon As Possible?

Because every dollar counts.


This article was written in collaboration with PropertyGuru. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their due diligence. You can view our full editorial policy here.

Increasing interest rates would be a cause of concern for many Singapore homeowners. Earlier this month, the US Federal Reserve raised interest rates by 75 basis points – the biggest increase since 1994, and indicated that rates may continue hiking in the near term.

Since many homeowners would have taken a home loan to purchase their properties, an increase in interest rate would lead to higher borrowing costs and monthly mortgage repayments. For homeowners with an existing home loan, a good question to ask ourselves at this point is that if interest rates are expected to increase in the near future, should we refinance our home mortgage as soon as possible?

The conventional wisdom is that refinancing our mortgage means finding the lowest possible rates. However, while it’s important to secure good rates, interest rate is not the only variable we need to look out for.

Your Refinancing Goals Matter

One of the things we should think about is our refinancing goals. For example, while some homebuyers may want to lower monthly repayments, others may prefer to be debt-free as soon as possible. Some homeowners may even want to refinance the loan for their private property to get cash for a major expense (i.e. take a home equity loan).

The home loan we choose should be aligned with our refinancing goals. If we are unsure of how to get started, we can use PropertyGuru Finance’s SmartRefi, a useful tool designed specially to help homeowners make the best refinancing decision, at the right time.

SmartRefi allows us to select our refinancing goal so that the ideal home loan package aligned to our objectives can be recommended to us.

Refinancing Or Repricing?

Refinancing and repricing are sometimes used interchangeably, and they both serve the same purpose – optimising our home loan’s interest rates. But the two are not the same.

Refinancing refers to switching our existing home mortgage to another bank, while repricing refers to taking a new home loan package with our current bank.

We can think of this as similar to our telco plans. Many of us would regularly change telco plans every two years to find a better plan. While we can choose a new plan from our existing telco (i.e. repricing), we would enjoy far more options and possibly get a much better deal if we choose between the plans offered by different telcos in Singapore (i.e. refinancing). The same logic applies to finding our best home loan package.

This isn’t to say that refinancing will always be better. At times, the best home loan we can find in the market may already be with our existing bank. In such instances, repricing could be the right choice. But the important point is for us to compare various banks and find the best option.

Read Also: A Mortgage Is Likely To Be The Biggest Loan You Take In Life. Here’s Why Many Singaporeans End Up Overpaying For It, And What You Can Do Instead

Factors That Determine The Ideal Home Loan Package For Us

Besides identifying our refinancing goals and searching for the lowest possible interest rates, there are some other factors we need to consider when choosing a home loan package.

One such consideration is whether we prefer a fixed or floating interest rate. Fixed rates give us the assurance of knowing the interest rate that we will get for a specific period. Floating rates use an interest rate benchmark (e.g. SORA) to determine the rates we pay on our home mortgage. Other benchmarks may include bank board rates and fixed deposit-pegged rates.

We should also consider the lock-in period for our home loan package. This matters if we have the intention to sell our home or make a payment to reduce our principal loan amount in the near term. If we do, then we should choose a home loan package with a shorter lock-in period or doesn’t charge a penalty if we make an early redemption on our loan.

With the inputs of the current loan, SmartRefi can help us calculate and give a detailed breakdown of the potential savings we can enjoy when we refinance our home loan. We can also toggle between fixed and floating rate packages to see the difference in savings we can enjoy. Typically, fixed rate packages offer higher rates as the banks need to factor in the uncertainty of rates potentially going up in the future.

If we don’t enjoy any savings if we refinance today, SmartRefi will also calculate for us what is the additional amount we may end up spending if we refinance now.

For such instances, instead of advising us to refinance, we can keep the “Switch Alert” on so that SmartRefi will track our current home loan against market interest rates and automatically notify us once interest rates are favourable for refinancing. This way, we don’t need to spend time constantly monitoring market interest rates daily.

Besides giving us information on how much we could save, PropertyGuru Finance mortgage experts can also advise us on other details such as our refinancing eligibility and refinancing fees or subsidies, if any. These are key pieces of information to make a good refinancing decision for our home loan.

Talking about refinancing eligibility, one important thing worth noting is that it typically takes some time for the refinancing process to be finalised. Besides having to submit the necessary documents for refinancing, we may also need to serve a notice period (usually about two to three months) for a loan redemption.

Thus, timing the refinancing process correctly is important to ensure we don’t pay higher interest rates unnecessarily for a few months when we could have refinanced the loan earlier.

By signing up for a PropertyGuru account through SmartRefi, we can receive automated notifications for refinancing at the right time. SmartRefi can help us monitor our home loan against daily market interest rates, and to nudge us when it is the right time to refinance. This way, we won’t miss out on refinancing our mortgage when the time comes and getting the best possible rates at the earliest possible time. This is particularly important during a period when interest rates are expected to rise in the future.

Often, the refinancing process involves quite a fair bit of paperwork. Thankfully, a PropertyGuru Finance mortgage expert can help us do the heavy lifting by guiding us through the refinancing processes and submitting the documents as necessary, making it hassle-free for us.

For those of us who are eligible to refinance our home loan or will be qualified to do so soon, it might be sensible to refinance as quickly as possible to lock in the rates we want before interest rates increase further.

Compare The Best Rates Across Major Banks, Enjoy A Fuss-free Online Experience & Receive Unbiased Advice

One thing we love about checking out home loan packages through PropertyGuru Finance is that we can easily get and compare rates across all major banks in Singapore, rather than be limited to just a few banks.

Also, a simple enquiry on these rates can be made online easily at our own time through SmartRefi. With our customised input, we can receive useful and almost instant information we need such as the savings we can enjoy and the fixed and floating rates we can get when we refinance our loan. Best of all, we can also get a PropertyGuru Finance Mortgage expert to advise us on the best home loans we can take based on our requirements, or to clarify any questions we may have.

Check out how the SmartRefi process works here.

With SmartRefi, we can enjoy a fuss-free online experience to ensure we get the best possible mortgage rate, and refinance at the optimal time for most savings.

 Read Also: Guide To Using PropertyGuru Finance To Help You Find The Dream Home (That You Can Afford)