To refinance or not to refinance?

With the new year in the horizon, the question on the minds of many home owners and buyers may be whether interest rates are likely to rise as the historic lows have been consistent for quite a while now. In fact, the United States Federal Reserve has announced a rate hike in the earlier part of the month though only marginally at 0.5 to 0.75 per cent.

In 2017 however, there may be 3 more rate hikes, which will in turn increase bank loans and mortgages rates all over the globe. Singapore included. The Sibor and SOR (swap offer rates) have both risen since the rate hike announcement, with the former rising to 0.96555.

Two golden idols carrying a red house with a "%" inconThose taking a new home loan might have to commit to higher loan rates. For those who are already servicing existing home loans and wish to alleviate the cost of servicing their loans, this could be their last chance to refinance. There are possibilities for them to convert to a different package within their existing bank or take up a refinanced package with another bank.

Financial analysts typically advise home owners to weigh the pros and cons of sticking to their existing home loan versus switching loan packages or banks carefully. The option which offers a lower interest rate and also allows for savings or provides additional means for investment would be the more favourable one. There are however interest reset dates to be aware of as penalties may be incurred should the loans be redeemed outside of these specific dates. Loan interest rates are usually reset quarterly, on March 1, June 1, September 1 and December 1. The general advice is to check with the bank at which the current loan is being serviced for any lock-in conditions or fees payable when switching loan packages or banks.