Ms Grace Cheng, co-founder and editor-in-chief of personal finance website Get.com, expects to see local benchmark interest rates Sibor (Singapore interbank offered rate) and SOR (swap offer rate) continue to rise correspondingly in the near to medium term.
The Sibor is typically used to price some home loans.
Both the Sibor and SOR rose markedly immediately after the Fed decision, with the three-month Sibor rising to 0.96555 last Friday.
"This would make home financing more expensive, given that the majority of housing loan packages offered by banks in Singapore are pegged to floating rates, with about half of overall banks' housing loan packages pegged to Sibor/SOR and the rest being board-rate and fixed-rate packages," she said.
Ms Cheng added that the ability to capture existing favourable rates could help alleviate the cost of servicing one's mortgage. It would also help to relieve home owners of anxiety amid concerns over rising interest rates, job security and a challenging economic landscape.
10 factors to weigh up before you refinance
Refinancing or re-pricing typically refers to a situation where the property owners move from one housing loan package to another - within or outside the existing bank - with the intention of saving money by reducing interest rates or capturing favourable rates.
But before you rush in, do consider if you are better off:
•Sticking to your current housing loan package;
•Converting to a different package with your existing bank; or
•Taking up a refinanced package with a different bank.
1. INTEREST RATE OUTLOOK
If interest rates are on the rise, it makes sense to refinance at existing favourable rates.
But if interest rates are falling, it is better to keep an eye out for an opportune time to refinance at a lower rate, said Ms Cheng.
Home owners can consider a variety of home financing solutions, including a fixed rate, a floating rate and even a combination, said Mr Lim Beng Hua, head of secured loans at United Overseas Bank (UOB).
2. TANGIBLE BENEFITS
Ms Lee Mei Ling, OCBC Bank's head of home loans product management, advised that home owners can consider refinancing if there are tangible benefits such as savings or an additional facility for investment purposes.
3. LOCK-IN PERIOD AND CHARGES
The lock-in period for home loans usually ranges between one and three years.
This is the period during which the borrower has to keep the mortgage with the bank.
Redeeming the loan prematurely results in the borrower having to fork out charges associated with refinancing.
Consider the various charges and penalties to determine if the potential interest savings outweigh the costs.
They include prepayment penalties (usually ranging from 0.75 per cent to 2 per cent of loan amount redeemed), cancellation fees (0.5 per cent to 2 per cent of loan amount cancelled), legal fees (about 0.4 per cent of loan amount), valuation fees and clawback of subsidies given by the existing lender, said Ms Cheng.
Ms Lee said that in such a scenario, you should refinance your loan only if the savings from the reduced commitment are greater than the penalty charges.
4. SUBSIDIES Some banks
offer subsidies to encourage prospective customers to take up their home loans.
The subsidies help to defray the cost of refinancing your home loan and usually pertain to legal fees, valuation fees and free fire insurance premiums.
For instance, OCBC provides cash rewards of up to $2,000 for this purpose.
5. INTEREST RESET DATES
This applies to loan packages pegged to Sibor or SOR.
So if you have such packages, bear in mind that you may incur penalties for redeeming the loan outside the specific interest reset dates.
"Let us assume you take up a loan on March 1 which is pegged to three-month Sibor. Since the loan interest rate resets every three months, you may redeem the loan only on March 1, June 1, Sept 1 or Dec 1. Otherwise, you may incur a penalty that usually ranges from 0.5 per cent to 2 per cent of the loan amount redeemed," said Ms Cheng.
6. REFINANCING REGULATIONS
Switching from one bank to another or changing the pricing package within the bank is subject to prevailing regulations on refinancing.
One such regulation is the Total Debt Servicing Ratio (TDSR) framework which requires a comprehensive assessment of affordability, taking into consideration a borrower's present and future commitments.
Ms Lee pointed out that the Monetary Authority of Singapore (MAS) has fine-tuned the framework to allow borrowers more flexibility in managing their debt obligations.