Interest in home loan refinancing rising

Interest in home loan refinancing rising

Some banks and mortgage advisers are reporting a rise in home loan refinancing inquiries as borrowers seek to lock in favourable interest rates amid concerns that they could soon rise.

When a borrower refinances, he replaces an existing home loan package with a new and more competitive one from a different bank.

Personal finance website Get.com said such requests have climbed after Mr Donald Trump won the presidential election in the United States earlier this month.

"There has been a slight pick-up in refinancing inquiries over the course of last week... as news of the Trump presidency started to sink in and market expectations of an interest rate hike in December become more intensified," said Ms Grace Cheng, co-founder of Get.com.

The interest rate outlook here is somewhat dependent on whether the US Federal Reserve hikes rates next month - a move which looks more likely after Fed chairman Janet Yellen told Congress last week that an increase could be "appropriate relatively soon".

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Online mortgage comparison site MoneySmart.sg, meanwhile, recorded a 30 per cent jump in refinancing inquiries over the weekend following Mr Trump's victory.

Maybank and OCBC Bank told The Straits Times there has been an uptick in home loan refinancing so far this year.

"We have seen a steeper growth in our number of refinanced home loans from August, with a bigger proportion of customers choosing to take up a fixed rate home loan package, which offers more stability," said a Maybank spokesman.

Interest rates here have shot up recently. The three-month Sibor or Singapore interbank offered rate - used to price some home loans - spiked to 0.92213 per cent on Tuesday.

The three-month Sibor, which had flatlined at about 0.87 per cent since July, crossed the 0.9 per cent level on Nov 15, from about 0.88 per cent a day before.

OCBC Bank economist Selena Ling projects the three-month Sibor to climb to about 1.3 per cent by the end of next year, while the three-month swap offer rate - a benchmark for commercial loans - could hit 1.35 per cent.

MoneySmart.sg's head of mortgage, Mr David Baey, said: "Anyone on a Sibor package should be looking at refinancing as Sibor will be greatly affected by any rise in the US interest rates."

He added that the three- month Sibor could revisit or even surpass the recent high of 1.25 per cent earlier this year, should the Fed put rates up.

OCBC Bank told The Straits Times it has seen an increase in borrowers refinancing their home loans this year, adding that "most customers are opting for our 36- month fixed deposit mortgage rate, and one-month Sibor (packages)".

However, loan experts say borrowers should change their mortgage package only if the potential interest savings are higher than the costs involved in switching over.

Mr Rohith Murthy, co-founder of personal finance website SingSaver.com.sg, noted: "Borrowers who have lock-in clauses should not refinance as the penalties involved are almost never worth it."

Apart from refinancing, borrowers could also consider repricing their mortgage with their existing lender.

DBS Bank said generally more customers will reprice their loans - mostly to a fixed rate package - when interest rates rise significantly and are expected to remain high.

"Each month, we see less than 0.5 per cent of our customers coming forward to reprice their loan," said Ms Tok Geok Peng, executive director of secured lending at DBS.

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This article was first published on Nov 24, 2016.
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