Refinancing My Mortgage – Decisions, Decisions…

Time flies: it’s been more than two years since I bought my apartment and I’m out of my lock-in period for my mortgage. This means I can refinance and hopefully get a better rate and save on my monthly payments.

I came across Property Guru SmartRefi and decided to try it out. SmartRefi states that it will auto-track my loan and notify me when it’s time to switch, and I think those are very nifty features. My current bank loan has been up for renewal in a while now and nobody reached out to me about refinancing. Maybe my loan quantum is too small? Oh well.

Refinancing goals

Like most people, I was going to refinance to get a better interest rate, but there are also other goals that the tool helpfully suggests.

If you wish, you may refinance your loan to pay it off sooner if you wish to be debt free. I don’t think this is the best move to make since mortgage loans tend to have low interest rates which mean your money is better off invested rather than put towards paying your mortgage. If you had taken a shorter tenure previously, you can also refinance for a longer tenure and stretch out your loan if you believe that “cheap debt is good debt” as I do.

Another feature you may also wish to consider is to get cash from your property by increasing your loan amount. For instance, I have about $491,000 left on my mortgage, and I can consider increasing it to about $591,000 during my refinance so that I can get $100,000 in cash. This allows me to use it towards investing, and with markets currently suppressed that may well be a good option, if a bit risky. Once again, cheap debt is good debt, and it sounds very tempting to have additional $100,000 in my war chest to invest, and then slowly pay off this amount on a monthly basis with relatively low interest rate.

Lastly, you can spend a couple of minutes to do a “mortgage health checkup” even if you have no immediate intention to refinance. This way you will get notified to refinance when it’s timely and not pay more than you have to on your mortgage.

Results

The tool was painless to fill up and took all but a few minutes. It then immediately (well, after I logged into my Property Guru account) gave me a report with some numbers including the best rate they could find and the monthly repayment amount which is somehow not a really common feature, at least based on my experience with mortgage brokers and bankers.

The report also included the legal costs and valuation fees for refinancing, and even the subsidy amount banks were offering to cover such fees. To be honest, I thought my savings wouldn’t be very much, and my first reaction to the rate they displayed was a little bit of disbelief (see the YouTube video). I was still quite new to the whole affair of refinancing, but now that I’ve researched it more thoroughly, the best rate given was a floating rate, and since interest rates have been very low for some time now, the rate seems attractive compared to the one I signed up for more than two years ago.

Adviser makes contact

I completed the tool around midnight, and less than 12 hours later, I got a missed call from the mortgage adviser in the morning… and I was asleep, of course. Nevertheless she emailed me a PDF that contained 5 different loan packages (2 fixed, 3 floating) and this is really the thing one would use SmartRefi for.

The information is well laid out and really shows me at one glance what my options are, from rates, to subsidy amounts, and then the absolute amount I needed to pay per month plus the savings I can expect to get. You can see all these in the YouTube video if you want, or try the tool yourself.

Decisions, decisions

I have a lot to consider: I am very tempted to increase my loan quantum to get more cash on hand. The dilemma now is whether to go for floating or fixed, and I need to pull the trigger soon because rates seem to be going in only one direction.

If I do refinance, I think I would indeed be going to borrow more, and at the same time opt for a fixed package to hedge my risks. Complicating things, however, is that I may wish to sell my condo apartment for a HDB resale unit once I reach the ripe old age of 35 next year. That is, of course, a story for another day.

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