Refinancing or repricing: which one do you prefer? Although these two terms look so similar, they are indeed very different. If you are a homeowner with a loan from a bank to repay a mortgage, refinancing and repricing are two options on the table, and we are going to dig deeper into the two. Keep reading to learn about their differences and make the big decision on the better option.
Refinancing or Repricing: Here are the Differences
Repricing is a common product offered by many banks in Singapore, and it allows a homeowner to switch to new and more competitive credit packages. Many people consider repricing as a go-to strategy when it offers new terms for the existing loan. Often, people consider this when their risk profile goes down and the lender is willing to change the loan conditions. For example, most people ask for loan repricing when they are sure of making some savings on interest. Note that you do not close the loan account; it is only about resetting the terms and conditions.
On the other hand, refinancing means you are closing the current loan account and setting a new one that comes with new conditions. Many people usually take a loan with a new moneylender, preferably one with better conditions and repay the older loan. Some banks might also allow you to refinance the loan within their systems, especially when your personal situation has improved and now qualify for a low-interest loan. For example, if you took a home loan when your personal credit score was not very good, but it is now impressive, you might qualify for loan refinancing.
Both refinancing and repricing in Singapore are targeted at helping people to pull down interest rates and monthly payments. Like other types of loans, it is crucial to look at the credit in its entirety, especially the total amount payable by the close of the loan term. Therefore, do not just use the advertised interest rate to make your decision. Instead, use a loan calculator to understand all the terms and conditions.
Why Refinance or Reprice Your Home Loan?
Refinancing and repricing allow homeowners to shift their loan packages to new ones that offer more savings to suit their needs. Here are the main reasons why you should consider refinancing and repricing.
At a time when the globe is emerging from the COVID-19 pandemic, almost everyone is looking for a way to make some savings. Most people are chopping off luxuries to free some money. Therefore, an opportunity to make more savings on your home loan might come in handy. Then, you can save the cash and use it for other purposes, be it groceries or children's education fees.
Opportunity to Enjoy Lower Interest Rates
When it comes to loans, whether refinancing, repricing, or even renovation credit, your eyes should always be fixed on the interest rates. Interest is the cost of taking the loan, and you should calculate it correctly. Before signing the refinancing or repricing loan agreements, make sure to carefully compare the interest rates. Again, you should not be solely focused on the advertised rates because they can be deceptive. Instead, you should look at the annual percentage rate (APR) and work through the entire amount payable. Then, compare the new package with the current one to see if there are gains worth going for. In most cases, the interest rates will always be lower in the new package.
Lower Monthly Payment
When considering a loan, everything should be broken down into monthly payments. This makes it possible for you to plan and stay on top of your finances. Because of lower interest rates, your monthly payment is likely to come down significantly. This means less pressure on your monthly budget.
If your target is simply pulling down the monthly payments, lower interest rates can help push that down, but you need to be cautious with extending the loan limit. The monthly payment will be lower, but the extended payment period means you will end up paying more. The best thing when going for repricing and refinancing a home loan is seeking an opportunity to clear the loan as fast as possible. Remember that clearing it comes with awesome benefits, such as releasing all the money you were paying and boosting your credit score.
Here are the Things to Consider before Refinancing or Repricing Home Loan
Before making the big decision to refinance or reprice your loan, it is important to consider a number of things. Here are some of them:
Start by Shopping Around to Identify Different Packages
In Singapore, there are many lenders who are willing to refinance or reprice your home loan, but you need to shop around. Particularly, you need to establish if you are comfortable with fixed rates, which are less volatile, or the floating rates. The latter can be volatile, but is more transparent. In some cases, the home loan packages are based on a fixed deposit rate. Like the floating rates, fixed deposit rates are volatile but you might prefer them because they are very transparent. So, let’s take a closer look.
- Whey to go for fixed home loans: When looking for a loan with low-interest rate and prefer budgeting with greater certainty, a fixed home loan is the way to go. If you are expecting the interest rates to go up, a fixed rate will also be an excellent choice.
- When to go for floating rate home loans: If you expect the interest rates of home loans to drop, taking a fixed home rate might tie you to high rates. Instead, you should go for a floating rate home loan. It also works well if you expect to clear the home loan before the end of the loan term. Depending on the selected lender in Singapore, it might be possible to clear the loan without charges for early repayment.
One thing you need to appreciate is that comparing these rates and different lenders can be pretty complex. This is why you should work with good lender comparison sites, such as Lendela. They make comparing lenders easy, fast and convenient.
Look for a Suitable Tenure
If you refinance or reprice a home loan and go for a short loan term, the monthly payment will be high and overall interest charges pretty low. This is the best way to knock down debts. However, taking a longer loan term means that you will be making lower instalments per month but the ultimate interest will be high. So, the overall amount payable will be pretty high.
Make Sure to Factor Your Age
What is your age? This is the big question you are supposed to ask before considering refinancing or repricing loans. One of the ways to identify the age is ensuring you take a loan that is repayable within your active employment session. If you are young, a longer repayment period might be okay. However, it will be even better if you can clear the loan faster because it makes it easy to access other loans.
What is the Cost of Repricing and Refinancing
When calculating the cost of refinancing or repricing a home loan, you need to factor in a number of things, including the total interest, valuation charges, applicable legal fees, early repayment charges, and potential savings. Here we must say that the repricing is slightly more expensive than refinancing. The main reason for this is that you are closing a loan account and working on a new one.
Your Credit Score
The moment you decide to refinance a home loan in Singapore, make sure to start by checking your credit score. If your score is poor, most lenders in Singapore might approve your deal, but the interest rate will be higher than for another person with an excellent credit score. Therefore, you should start by ensuring the score is high to get low interest rates. Some good tips for improving credit score in Singapore are:
- Check for errors on your credit report and have them (If any) fixed before applying for a loan.
- Build a positive credit history by taking short loans and repaying them fast.
- Maintain a good credit mix.
- Clear existing loans.
- Take a consolidated loan to clear other unsecured credit.
Take Any Offer Available
One thing you need to appreciate about lenders in Singapore is that they are all in business and after profits. Therefore, they usually give offers to attract more clients and remain competitive. So, you should look for these offers and take them because they mean lower interest rates and other terms and conditions. For example, some banks waive the processing fees on repricing packages, allowing you to save even more. In the case of refinancing, a lender who waives legal and valuation charges might help to keep the total amount payable low.
Unto the Big Question: Is Refinancing a Good Idea?
Is it a good idea to reprice or refinance your home loan? It will be a good idea to go for home loan refinancing if there are some savings to be made. However, you need to compare the level of savings that would result from refinancing and repricing.
It is true that repricing is pretty straightforward, but the interest rates are usually lower compared to those of refinancing. However, there is a long list of the costs for legal and valuation needs. See: the process is similar to taking a new loan. For example, you need to meet the preset Total Debt Service Ratio (TDSR). So, it might be a good idea to go for repricing if your income is low.
In Singapore, most lenders will only work with you after checking the credit report. Therefore, you better make sure that the score is awesome to enjoy lower rates.
Applying for Personal Loans in Singapore
Now that you have understood the core differences between refinancing and repricing, there may be a need for some extra cash to cover an additional cost related to your home, such as a renovation or new furniture? Well, there are many lenders in Singapore, which is a good thing, but it can also make the process of your application lengthy, complex and expensive. Instead of spending entire days or weeks trying to submit multiple applications and compare loan options, why not leave the job for the experts? The smartest way to do it is to use a loan comparison platform, and Lendela is the best option for this in Singapore.
Lendela is a respected and trusted brand that was designed to help make the process of loan applications easy and straightforward. When you submit an application for a personal loan, Lendela does not just broadcast it to any lender. Instead, we use a loan matching algorithm to ensure that your application is only sent to lenders who are willing to work with clients of your profile.
Another advantage of using Lendela is that we work only with banks and legit lenders. This means that you are sure of avoiding loan sharks that prey on unsuspecting clients online. Here are the main steps involved in applying for a loan through Lendela.
- Visit Lendela to submit your application. This should take you only a short while.
- The loan application is sent to different banks and lenders who review your status and send back pre-approved, tailored offers.
- You compare your offers and select the preferred option (this is the best point to seek expert help, and Lendela’s Customer Relationship Team will be there for you).
- Lendela helps you book an appointment so that you can sign the loan agreement with the lender.
- The loan agreement is finalised and you can start to use the money.
Conclusion: Refinancing and Repricing
Refinancing and repricing home loans come out as useful ways to rethink your home credit. Although they are both aimed at pulling down the interest rates on a loan, you should carefully compare the things we have listed in this post to be sure of enjoying the highest value for your money. Finally, you need to put a lot of focus on loan repayment because defaulting can have serious implications. So, stick to your new loan package and clear it within the agreed timeframe.