Find yourself in a bit of a scramble because your home loan is up for renewal soon? Could now be a good time to review and refinance your home loan in Singapore? Or should you increase the size of your regular repayments and pay off your loan sooner?
Before you launch into the overwhelming task of refinancing or repricing your loan, it could be worthwhile to take 20 minutes to do a financial health check on your loan.
While the joys of checking on mortgages can hardly rival an hour on Netflix, a yearly financial health check on your loan is helpful, especially if you’re planning for changes in your life. For instance, you may be thinking of starting a family.
Milestones like these should be considered to ensure your needs are best served as you shift priorities and take up your next home loan.
How to know if it’s time for you to do a financial health check on your home loan?
We recommend that you do a yearly review of your home loan if you’ve responded with a yes to most of these questions:
- Do you want to pay off your home loan faster?
- Do you plan on making any major purchases soon?
- Do you want to save money on your home loan?
- Is your financial situation likely to change within a 12-month period?
- Are you struggling to meet your current commitments?
- Is your fixed-rate or interest-only home loan expiring soon?
- Are you happy with your current bank or lender?
Even if the questions don’t apply to you currently, reviewing your loan in advance will pick up present conditions that could potentially save you thousands of dollars. For one, you could vary the features on your current loan to serve your impending needs.
The mystifying pool of mortgage terminology, features, and the myriad of available options can prove to be quite a lot to try to make sense of. But a home loan health check will help you make an informed decision. Here are some considerations:
- Could you be getting a better interest rate by refinancing your home loan to another lender?
- Should you switch between fixed and variable rate or vice-versa?
- Are you informed on your property value?
- Are you in the position to access the equity in your home?
- Are you getting the most out of the home loan features?
What our Home Loan Health Check entails
Home Loan Health Check with our experts at FinanceGuru takes approximately 20 minutes. Before you go for the home loan check, it’s useful to have the following on hand:
- Address of the property
- Your most recent home loan statement
With these information, we’ll be able to:
- Advise you on an approximate valuation of your property
- Determine the remaining balance and the repayment schedule of your current home loan
- Help with an understanding of the Loan to Valuation Ratio on your home
These 3 components are integral in providing an accurate assessment of a loan type that best meets your needs.
Now, it’s important to remember that it’s not always about getting a better rate. There’s a tendency for most borrowers to focus on getting a lower interest rate.
However, there are other factors to consider before signing up, such as:
- Your personal circumstances can change or may be changing, such as work arrangements, travel, marriage or children
- Your current and future needs
- Your short and long-term financial goals
Without proper consideration of these 2 factors, your loan features that you’re paying for may not adequately support your current and future plans.
How home loan repayment works
A home loan payment is calculated based on amortisation. Loan amortisation is the process of spreading your loan payment into a series of fixed payments. It is designed to help borrowers manage their repayments easily as a portion of each payment is applied towards the principal balance and the interest.
Below is a loan amortisation table to help you visualise your loan repayment. We use a $500,000 loan amount for a 20 years loan at 2.60% interest rate.
| Month | Payment amount | Amount applied to Principal | Amount applied to Interest | Remaining balance |
|---|---|---|---|---|
| 1 | $2,673.94 | $1,590.61 | $1,083.33 | $498,409.39 |
| 2 | $2,673.94 | $1,594.05 | $1,079,89 | $496,815.34 |
| 3 | $2,673.94 | $1,596.51 | $1,076,43 | $495,217.83 |
| … | … | … | … | … |
| 220 | $2,673.94 | $2,656.63 | $17.31 | $5,330.55 |
| 230 | $2,673.94 | $2,662.39 | $11.55 | $2,668.16 |
| 240 | $2,673.94 | $2,668.16 | $5.78 | $0 |
Your repayments are recalculated when one or more of the following takes place:
- An interest rate rise
- When you make payments towards lowering the principal amount of your loan
- You are coming off a fixed or introductory period which had featured a lower rate than the new loan type
Find out how to choose the right personal loan repayment plan here.
Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today.
