What is Mortgage Refinancing

Mortgage refinancing is the process of replacing an existing mortgage loan on a property with a new one. This is typically done to take advantage of more favorable terms, such as lower interest rates, improved loan terms, or to access additional funds

How mortgage refinancing works

1. Assess Your Current Mortgage: Start by reviewing your current mortgage terms, including the interest rate, loan amount, and remaining loan balance. You should also be aware of any prepayment penalties or fees associated with your current loan.
2. Check Your Credit: Your credit score plays a crucial role in your ability to refinance and the interest rate you’ll qualify for. A higher credit score generally leads to better loan terms. Make sure your credit is in good shape before applying for a refinance.
3. Shop for Lenders: Research and compare offers from various lenders, including banks, credit unions, and online mortgage lenders. It’s essential to consider not only the interest rates but also the fees and closing costs associated with each lender’s offer.
4. Apply for Refinancing: Once you’ve chosen a lender, you’ll need to complete an application, which includes providing your financial information, employment history, and other relevant documents. The lender will also order a new appraisal of your property.
5. Underwriting and Approval: The lender will assess your application and determine if you qualify for the new mortgage. They will also evaluate the property’s value to confirm that it meets their lending criteria.
6. Receive Loan Estimate: The lender will provide a Loan Estimate, which details the terms of the new mortgage, including the interest rate, monthly payment, and closing costs. Review this document carefully to ensure it aligns with your expectations.
7. Lock in the Interest Rate: You can choose to lock in the interest rate if you’re satisfied with the terms. Interest rates can fluctuate, so locking in a rate helps you secure the rate you want, but it may come with an expiration date.
8. Closing Process: If your application is approved, you’ll go through a closing process similar to the one when you initially purchased the home. You’ll sign the necessary documents, and the lender will disburse the funds to pay off your existing mortgage.
9. Start Repaying the New Mortgage: Once the new mortgage is in place, you’ll make monthly payments as specified in the loan agreement. These payments may be different from your previous mortgage, depending on the new terms.

How much will my mortgage go down if I refinance

The amount by which your mortgage will go down if you refinance depends on several factors, including the current terms of your existing mortgage, the terms of the new mortgage, and the specific goals you have for refinancing.

Generally speaking, the earlier you refinance, the more interest savings you can get.

Benefits of mortgage refinancing

Lower Interest Rates

One of the primary reasons people refinance their mortgages is to secure a lower interest rate. This can lead to reduced monthly mortgage payments, which can make homeownership more affordable.

Lower monthly payments

By refinancing a loan with a lower interest rate or extending the loan term, homeowners can often reduce their monthly mortgage payments. This can free up cash for other expenses or savings.

Cash-out Refinancing

This option allows homeowners to refinance for an amount greater than their existing loan balance, receiving the difference in cash. It can be used for various purposes, including home improvements, investments, or other financial needs.

How often can you refinance a mortgage?

Many mortgage loans in Singapore come with a lock-in period during which you are not allowed to refinance without incurring a penalty. The lock-in period is typically set by your current lender and can last for a few years, such as two to five years. During this period, if you choose to refinance with another lender or pay off your loan, you may be required to pay a penalty or breakage cost.

It is a good idea to start sourcing for better rates 6 months before the expiry of your lock-in period.

Costs involved in mortgage refinancing

1. Legal Fees: You’ll need to engage a law firm to handle the legal documentation and conveyancing work for your refinancing. Legal fees can vary, so it’s advisable to obtain quotes from different law firms.
2. Valuation Fees: A professional appraiser will assess the current market value of your property. The valuation fee is typically paid by the borrower and can vary based on the property’s size and location
3. Prepayment Penalty: If your existing mortgage has a lock-in period, and you are refinancing before this period ends, you may need to pay a prepayment penalty or breakage cost. The amount of this cost can vary based on your lender and the terms of your existing mortgage.

Conclusion

It is important to carefully assess and compare all of these costs when considering mortgage refinancing.

The total cost of refinancing, including these fees, should be weighed against the potential savings or benefits of the new mortgage.

Before proceeding, consult with a mortgage specialist to ensure that refinancing aligns with your financial goals and is financially advantageous for your situation.