Refinancing your mortgage is something you should re-visit every once in awhile if you have a property loan. In this article, we explore the basics of property refinancing and some tricks from the experts.
Know your objective
Firstly, before refinancing, it is important to know why you are doing it. Knowing your objectives makes it easier to know what to compare and what to watch out for. It usually falls within these 4 categories:
- Get overall monetary savings. Usually from interest rate reductions against your existing home loan.
- Withdraw cash for other usage.
- Debt consolidation e.g. credit cards, personal loans, overdraft facilities, car loans. Housing or property loans have the cheapest interest rates compared to other types of loans and credit facilities.
- Change the installment repayment pattern to suit your goals / ability.
Beware of the dog
Once you know why you want to refinance your house / property, there are potential costs and pitfalls to consider.
1) Lock in periods on your existing loan:
- Terminating your loan prematurely may result in early exit penalties.
- Penalties typically range from 2%-3.5% of the original loan amount.
- If you were on Zero Entry Cost packages (e.g. Valuation Fees, Legal fees absorbed by the bank), there are potential claw back charges.
- It is safe to start the refinancing application process 4 months before the lock in period expires. You can usually get away with no exit penalties.
2) Loan redemption fees:
- Paid to lawyers for the documentation necessary to redeem a loan (also known as Perfection of charge).
3) Termination of existing MRTA policies (not applicable to MLTA):
- Typically, MRTA policies are not transferrable to the new loan, except if you refinance with the same bank.
- Insist to cash out on the surrender value of your existing MRTA policy. This will bring down the total redemption sum. Many people neglect to take this step.
4) Loan documentation fees for the new loan:
- You can know your legal fees of refinancing by using our Home Loan Calculator.
- You may not get the best possible interest rates or get locked into a longer lock in period. But consider Zero Entry Cost (ZEC) packages if you want to refinance for no money down at all.
After you know your refinancing costs, start looking around for the best home loan/commercial property loan packages available. The interest rate comparisons will be especially useful for those seeking monetary savings and those looking to consolidate their debts (credit cards, personal loans, overdraft facilities).
Aside from that, the maximum loan tenure and other product features e.g. flexi, payment holidays, fixed rates will be especially useful for those seeking to reduce their monthly installment commitments. If you are looking to cash out for other usages e.g. renovations, other investments, pay attention to the property valuations offered by banks.
Alternatives to Mortgage Refinancing
If you are looking for monetary savings, your existing bank may be open to restructuring your existing loan with better interest rates, subject to conditions. Check with them before you go hunting. If you are looking to cash out, your existing bank may be able to offer Top Up Loans. Some also have what is known as a Renovation Loan. Enquire with them, or submit an application to Loanstreet.
If you only want a small amount of cash, a Personal Loan may be a better option to avoid all the legal fees involved in refinancing. It is also faster.
Other tips and tricks
By refinancing from Conventional to Islamic packages, you can enjoy 100% stamp duty waiver on the existing loan balance. Factor this into your decisions.