Refinancing Your Home Loans in 2016
In January this year. The SIBOR and SOR rates hit their highest in seven years. The rates are used commonly to price mortgage rates in Singapore. Spiking rates generally spell trouble for home loan borrowers, as they may find their monthly repayments increasingly higher.
Those who are two or three years into their loans may find that their lock-in period is coming to an end, allowing them to consider refinancing or a repricing of their existing loans. Banks usually offer a lower interest rate during the initial years of a loan in order to attract borrowers to stay with them.
One of the main concerns with refinancing comes from the amount of charges banks levy on borrowers. But most over-look a more important criteria, the problem of eligibility.
Due to the changing landscape of the property market in the past year, refinancing is becoming more difficult.
The TDSR was introduced as part of the cooling measures in 2013 and limits the amount the bank can lend you to 60% of your gross monthly income. Your outstanding debts are factored into the TDSR percentage before banks calculate how much they are willing to lend you.
For borrowers who had taken up a loan in the last three years and are thinking of refinancing, they will have to go through the TDSR requirement again. Depending on how much your financial situation has change, you may be eligible for shorter loan tenors only, resulting in higher monthly repayments or the removal of previous guarantor on your loan.
If this happens, refinancing may not be a better move in the sense that you end up with a higher monthly repayment compared to before refinancing, adding on to your monthly financial burden.
You might have had a change of job in the last three years, or perhaps you have gone freelance or tried to set up your own company. This will likely mean that your income situation has changed compared to when you had applied for your home loan two years ago.
Due to the TDSR requirements, all variable income including bonuses and commission are subject to a 30% haircut. They will require at least 3 months’ payslips to determine which component of income is fixed and only take those into consideration.
With such stringent definition on what is defined as income, it can cause much problem for those who have had a change in their career. Those without a “regular job” may fail the refinancing eligibility even if they are more cash-rich than others.
One way you can try to get around this is to ask if the bank can look at your total assets instead. These can include stocks and shares, which could be used to lower the TDSR requirement.
Falling Home Prices
Declining property prices are definitely good news for those who are looking to buy. After all, the past few years of crazy home prices have probably caused many to sit out and wait for the down cycle in the property market. While this is great for those looking to buy, those looking to refinance will face the problem of falling property valuations.
As you have most likely bought your home 2 to 3 years back where prices peaked, the lower valuations now will mean that the loan quantum will be reduced. This effectively translates to a smaller amount of loan you can take out.
Interest Rates Might Fall
The current increase in rates have been foreseen in a way – more than a year ago the US federal Reserves have announced that they are ready to raise interest rates after years of staying near zero. However, with the current global economic situation looking lacklustre, the Federal Reserve Chair Janet Yellen has recently said that negative rates are not “off the table”. If this happens, rates are probably going to stay near where it is or come off lower, which means that there’s probably little benefits to refinancing your loans.
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