Refinancing in 2020 – is now the right time to fix?
How long you should fix your mortgage?
Why Fix Your Mortgage Rate?
The attraction of a fixed rate mortgage is the certainty it brings to your monthly repayments. The interest rate on a fixed rate mortgage is fixed for a specific period and will remain at the same rate regardless of changes to the marketplace interest rate. However, once the fixed period expires then the rate will normally convert to lender’s/bank’s floating Rate or a base rate plus a spread.
Floating rate or variable rate mortgage are vulnerable to interest rate rises. If interest go north so will the monthly mortgage payment. However, if the base rate is not SIBOR, it will then be determined by the individual lender/bank at their own discretion.
Will Interest Rate Rise?
The arrival of the COVID-19 pandemic has gotten Interest rate to drop to an all-time low now. Now with the easing of the COVID-19 situation and reopening of economies in many countries, at some point, there is going to be an interest rate increase.
Is Now the Best Time for Fixed Rate Mortgage?
There has not been a better time to go for a fixed rate mortgage. The mortgage market will not remain low forever and once people hear rates is increasing, many consumers who are waiting for rates to fall, will rush to refinance and fix their mortgage. However, do note that all lenders/banks have a limited tranche, once they hit their target, they will no longer accept any new borrowers. Once the cheapest rate vanished, consumers will rush to next best rate resulting a quick disappearance of such low rates.
How Long Should I Fixed My Mortgage? 2 Years, 3 years or 5 Years?
The longer period you go for means the longer you are locked into the low rate. It makes even more sense for smaller loan size of SGD 400,000 and below. As you may be aware that each time you refinance, there are cost involved be it through repricing with your existing lender/bank or moving to a new lender/bank which provide you with better rates.
In the case of repricing/refinancing with your existing bank after your lock-in period, the bank will charge a percentage of the undisbursed amount (average at 0.75%) plus a processing fee (about 750-1000, depending on bank). The total charges will then be added to your outstanding loan amount and form the basis of your new loan amount.
If you should refinance with a different lender/bank, usually the new lender/bank provides some cash subsidy to negate the cost involved in conveyancing, which includes the legal fee and valuation fee. You do need to note the amount of subsidy you get may not cover the cost of conveyancing, if your loan size is small. Also, the best rates offer by lenders/banks usually need a minimum loan size to qualify. When your loan size is small, you are likely not go to get the best rate advertised.
The longer fixed rate term is also suited for individual that has
Signing on longer fixed term rate when interest is low is universally acknowledge as a good choice. For individual with concern on the flexibility of a longer-term mortgage, you may want to note that some banks allow early redemption of loan due to sales with no penalty. Speak to one of our consultants today to learn more.
