Your mortgage interest rate won’t stay at the same rate throughout the whole tenure. Especially in this year, mortgage borrowers are experiencing relatively much higher interest rates compared to the past 10 years. We always advise our clients to review their mortgage every two – three years before the mortgage anniversary.
1. Review your Mortgage – Principal balance
If your mortgage size, or the principal balance, is less than $500,000, we will advise you to consider repricing as the first option. In most cases, you won’t enjoy much savings after the cost incurred for the refinancing process.
Here is the simple math illustration:
Assuming you have a mortgage with $300,000, every 1% saving, you will enjoy a saving, approximately $3,000 for next 12 months.
The legal fee subsidy is only about 0.4% of the mortgage amount, which is only $1,200.
Let’s assume the legal fee is $2,000, your refinancing cost, out of pocket, is $800.
For a saving of $3,000, and you have to fork out $800, the net saving for the next 12 months is only $2,400 or averagely $200 per month saving.
Well, the refinancing process also requires you to meet up with the bank representative and the lawyer. These are the hassle you need to go through for this amount of saving. .
The simpler & less hassle way for managing a smaller loan size is always through applying repricing via the current bank. The process is much simpler, and you probably only fork out $500 for the repricing application. Sometimes,the repricing rate could be competitive as well.
If your mortgage size is more than $500,000 or above $1mil, we welcome you to approach us for refinancing advice.
2. Review your Mortgage – Interest rate current & after lock-in period
Most of the mortgage packages were designed in the way that, for the first 2 – 3 as a lock-in period. And normally, the interest rate within this period is cheaper. Your interest rate will increase after this period. That is the reason why it is advisable to review 6 months before your mortgage anniversary date or exiting the lock-in period.
If your mortgage is still within the lock-in period, for apple-to-apple interest rate comparison, you shall compare the rate post lock-in period with whatever new rate. If your mortgage is already out of the lock-in period, you may just compare the current rate with the new rate.
Overall, refinancing is not a short process. Conservative saying, it requires 4 months time from the date you apply the refinancing with another bank. The ideal situation is your mortgage will transfer from your current bank to the other bank on the day after the lock-in period.
It may sound complicated. Please do not worry about this, our consultant will assist you on this.
3. Cost for refinancing
The major cost for refinancing is the legal fee and the valuation fee. The legal fee is always about 0.4% of the mortgage amount and it is also capped at $2k or $2.4k, depending on the bank. As mentioned in paragraph 1, it is not advisable for applying for refinancing when your mortgage size is too small. You will enjoy little or no savings after the cost.
4. Any savings for the next 24 – 36 months?
The purpose of getting a good refinancing is to pay a lesser bank interest rate. However, the relatively lower interest rate is not throughout the entire loan tenure, it is only about 2 – 3 years.
5. Fixed rate or Floating rate?
There is no definite answer for choosing fixed rate or floating rate. It is not only about a person’s risk appetite but also about the mortgage size. We do not encourage our clients to take unnecessary risks. Generally, a fixed rate package is always higher than a floating rate package.
However, if the fixed rate is about the same as the floating rate and it is not more than 0.5%, we will recommend a fixed rate, even if it is slightly higher than the floating rate. Nobody has the crystal ball to see the future interest rate. By taking up fixed rate, you will eliminate unnecessary interest rate risk and avoid the shock & pain of potential interest rate spike.
6. Length of Lock-in period
Typical mortgage package comes with a no lock-in, 1 – 3 years lock-in period, and some is 5-year. In our view, the lock-in period is about the flexibility of the mortgage package. Currently, rarely to have zero lock-in. Majority are 1 – 3 years lock-in.
7. Mortgage Comparison by unbiased Mortgage Advisor.
Do you know that you can engage a mortgage broker or advisor for free?
Normally, a mortgage advisory company ties up with a few banks and the advisors are well-trained in mortgage related products.
8. Pre-submission case review.
We prefer to have a pre-submission case review with the respective bank representatives before we inform our client to submit documents to the subject bank. It is considered our in-house SOP in handling mortgage applications. Through the primary review, we will be able to know if there is any gap for the approval. Especially with today’s stringent TDSR criteria, the applicant may need to accept the loan reduction scheme.
Engage our free mortgage advisory today.
