Make Money Work Harder (MMWH) - how to make home loans work harder foryou

I've spent quite a few years in housing loans. Thought it's high time I shared how to save money on housing loans and in some case, make your housing loan work for you !

Taking up a mortgage from a bank can generally be for three purposes:
1) purchase of a house
2) refinancing your current mortgage for interest saving 
3) cashing out on a fully paid up property or property with low loan outstanding (this is only applicable for private properties, not HDB)

Given that we are in times of increasing interest rates, I will focus on refinancing in this post. 

Some mortgage loans in the market has a lock in period. Typically it ranges from  0 to 3 years of lock in where you cannot fully pay off the loan (if you took up a fixed rate loan, you cannot partially prepay the loan either). If you do, you will attract a hefty penalty. And typically within 3 years, if the bank has absorbed your valuation fee or legal fees, this can be clawed back from you as well. 

As such, refinancing is seldom done in the first 3 years. However, it can still make sense if the interest rate savings you get from refinancing outweighs the penalty incurred. However, given that we are in an increasing rate environment now, it may soon not be possible to refinance to a lower rate versus what you are getting now. 

However, there is still a need to consider refinancing even in this environment because : 
- usually there is a steep increase in rates or spread from 3rd year to 4th year. Hence, if you are in the 4th of subsequent year, you may be paying more than prevailing rates. 
- if you are having a floating rate / variable rate loan now, and if your view is that Fed will increase its rates and hence sibor will be increasing soon, then it may make sense to switch to a fixed rate package or an offset package that can mitigate potential rate hikes.
- if you want to cashout on your private property and your current bank is unable to grant you the amount that you want , it may make sense for you to find another one who will grant you the loan required. 

All these are reasons to consider refinancing your home loan every 3 years. 
Just for illustration's sake, a 0.5% interest rate hike on a $500,000 loan translates to $2500 extra interest per year. And this can be saved if you are prepared to go through a bit of hassle every few years. 

Still not sure, feel free to check with me. 

Caveat: This represents my personal views and not that of any bank including my own. 

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