Glossary for housing loan terms can be read from here.
The catch is most of banks or financial institutions in Singapore welcome potential debitors with S$100K or more outstanding loan *only*. Another bad news is that the current bank may not inform their customer (like me and you) when we are actually no longer in the lock-in period. The fact may be just slipped under the carpet and we pay higher interest rate unknowingly every month.
For those "unfortunate" almost-debt-free person you must try extra hard to minimize the loan interest with both above methods. Absolutely the uncomplicated way is to stay with your existing bank with higher interest (ca. 3.75% annum). Financial advisors informs that there is no significant benefit for the debitor and especially for the creditors to switch at this "small" loan since there will be legal charges involved by the new bank and/or maybe claw back charges from the old bank. Don't forget there is also $1.8 - 2.5K for legal fee with very small 0.4-0.5% subsidy from the new lender. Simple calculation with existing loan $100K shows the difference of total interest paid for 3.75% and 2% rate (after refinancing) as follows -- assume fixed rate:
- 10 years: $20,073 and $10,416
- 9 years : $17,977 and $ 9,353
- 7 years : $13,854 and $ 7,246
- 5 years : $ 9,824 and $ 5,167
- 3 years: $ 5,886 and $ 3,113
It shows clearly that earning $10K more interest in 10 years for a reputable bank is nothing. However as a debitor you gain $10K or $8K after legal fee ! Please check carefully with the new bank what is the term and condition for lock-in period, partial payment policy, and other hidden charges.
Tactful way if you think it is necessary to upgrade to a bigger flat or own a private property (condo, semi-detach, terrace, landed property) then banks would be happy to finance you again :-) Paying your debt in lump-sum is a wise thinking for some people, although some financial gurus says indeed it is not a smart move since housing loan in SG is the cheapest loan you can get compared to other consumer loans like car, education loan, credit card, etc.
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