What is Repricing or Conversion
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Repricing or conversion takes place when a customer chooses to change his existing housing loan to a more attractive loan package offered by the same financier.
Some factors to consider before making the switch:
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You must be free from any lock-in period so that no penalties would be imposed. |
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You must stay with the same financier. |
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You can opt for the prevailing rates and packages. |
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Some financial institutions charge a conversion fee even when you are out of the lock-in period. |
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Most financial institutions have a different set of rates for repricing which is normally higher than the rates offered to new customers.
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What is Refinancing
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Refinancing is when you are currently servicing an existing housing loan with a financier and you want to switch to a different financial institution in order to enjoy savings from lower interest rates, to repay your housing loan in lesser years, and/or to gear up / cash out extra cash (to take up an additional equity loan on your property). This can be achieved as long as the collective refinanced amount is within a certain percentage of the valuation of the property.
The total quantum of loan granted would vary depending on the financial institution.
You should take note that certain penalties and fees may be imposed prior to the switch.
Some financial institutions have one or a combination of the following charges:
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A redemption fee (between $300 - $500 as an estimate). |
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Prepayment penalty (between 1% - 2% on the outstanding loan) if the full redemption is within a commitment period / lock- in period. |
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Claw back of all fees (ie. legal subsidies, valuation fees, fire insurance, etc) paid on behalf of the customer upon taking up the initial housing loan. |
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Refund of any cash rebate that was paid to the customer upon disbursement of loan (for cash rebate packages) should the full redemption of loan be within the commitment period.
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It would be prudent for you to consider the net savings to see if it is worth the effort to make the change. There have been incidences where homeowners have decided to make the switch even when there are initial costs involved with the forecast of potential savings over the mid to long term. Savings would not only be derived from lower monthly installments, but more importantly from the interest saved on the entire loan quantum. You would enjoy 2-fold savings from monthly installments and collective interest payments.
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Homeowners often consider refinancing their existing housing loans for these reasons:
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The current housing loan does not meet their needs any longer. |
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They are dissatisfied with the current financier (this could be due to varied reasons from interest rates to poor service). |
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They are dissatisfied with the current financier (this could be due to varied reasons from interest rates to poor service). |
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They want speed in repaying their loan in lesser years to save on interest payments. |
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They want to renovate their homes. |
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They want to purchase an investment property and want to consolidate their housing loans. |
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They want to consolidate all their debts. |
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They need extra funds for investment purposes.
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It is important that you consider the following when contemplating to refinance your existing loan:
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Should I refinance or reprice? |
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Will there be any penalties imposed? |
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What are the costs to be incurred when refinancing? |
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What are my immediate and mid term savings? |
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What are the rates and packages offered by the other financial institutions? |
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What is the BEST rate currently offered in the market? |
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Can the new financial institution provide me with any additional funds and/or more flexibility to suit my needs? |
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What are my short-term and long-term objectives? |
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Do I have any immediate needs that are causing me to consider refinancing or repricing? |
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What is the first thing I have to do before I make a decision? |
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Should I speak to MoneyMind’s Mortgage Advisors to understand my options and exposure?
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Over the last year or two, the SIBOR (Singapore Inter-Bank Offer Rate) has gone through a full cycle from high to low. Financial institutions have been grappling with this growing concern of cost of funds and have been in a constant position to review their cost against their lending rate. As such, this cost is inevitably passed on to customers.
Like all homeowners with an outstanding housing loan, you would be equally concerned with the interest rate charged on your existing housing loan. If you find that your existing housing loan no longer meets your needs, or if you are dissatisfied with the interest rate charged on your current housing loan, refinancing your existing loan would be a good option. With prudent mortgage planning, refinancing may save you money by reducing the monthly installment for your existing loan, or it may help you repay your loan in lesser years.
MoneyMind's main objective is to assist you in saving your hard earned money. A lower interest payment on your housing loan translates to direct savings. When making a decision whether to refinance or to reprice, our fully qualified Mortgage Advisors can assist you with your financial calculations to ensure that you have a clear course of action to take
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