|The scenario below helps you to better understand how refinancing your property allows you to save on your mortgages with the banks. Customers with loans from the banks may either request for a repricing on the interest rates with their current bank or seek a better package from another bank. |
Repricing with current bank may seem to be an easier option. However, more often than not, existing banks are unable to offer the promotional packages as offered to new customers. Hence, customers will look for more attractive home loan package with another bank.
Mr. Tan has an existing mortgage loan with Bank "A". The mortgage was held with the bank for more than 3 years. Current interest rate that Mr. Tan is paying is for 4.5% as compared to 2.25% when he was signed up. Current outstanding loan amount is about $500,000. Loan tenor is signed at 25 years. The current installment amount is $2,815 with more than $1,900 is charged as interests and the remaining amount is deducted from the principal amount.
More than $22,500 goes towards the interest payment per year based on the current loan rate.
A new loan package was offered at 2.5% by Bank "B". The new loan offer better terms such as no locked in, new fire insurance and, more importantly, better interest rates. The new installment is $2,243 and with only $1,040 towards the interests.
Interest payment for the new loan in a year is at $12,000.
Total savings, based on interest saving and more principal being paid in 2 years due to the refinancing, for Mr. Tan is $26,613.
After reducing the refinancing costs which is about $500 (after the legal subsidy), the saving will still amount to about $26,113.
Thus it is appropriate for mortgagors to do a review on their loan often.
- Make sure that the loan is in check.
- Lower interest rate.
- Free renewal on the fire insurance.
- More principal paid down.
- Lesser interests paid.
- Customer may be even able to fully redeem the property much earlier with proper loan planning.