Finding ways to lower your mortgage payments is something you may have been looking at in the current high interest rate environment. Many homeowners, especially those on floating rate home loans, have felt the pinch as mortgage interest rates climbed.
But what goes up must come down. The US Fed has signalled to make three rate cuts in 2024. While this is good news, it is unlikely that interest rates will drop to the lows seen during the COVID-19 pandemic. So, what can you do to lower your mortgage payments in the meantime? Refinance your home loan, of course.
If you’re coming to the end of your lock-in period and want to save money, it’s the perfect time to think about refinancing. In this article, we’ll show you how to refinance your home loan in 2024 and explain how refinancing can lower your mortgage payments. If you’re ready to refinance your home loan, use our SmartRefi tool or browse the latest home loan packages available to score the best mortgage deal.
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Lower Your Mortgage Payments in 2024 by Refinancing (Video)
For those unfamiliar with refinancing your home loan, watch this video for a quick introduction to refinancing your home loan.
What Is Refinancing?
Refinancing your home loan is when you replace your existing property loan with a new mortgage from a different bank. Usually, you do so when the new home loan offers better terms so you can lower your mortgage payments.
Your existing home loan may have been the most suitable choice for you when you first bought your property. Now that it’s been some time, maybe there are better mortgage packages with lower rates available. Or maybe you’ve started a family and have new debt obligations, so you want to adjust your loan tenure.
Regardless, you need to lower your mortgage payments to make servicing your mortgage more manageable. If you don’t refinance your home loan, chances are you’ll be paying more interest than you must. Effectively, the overall cost of homeownership goes up. Aside from getting to lower your mortgage payments, you want to refinance to ensure your current home loan is in line with your financial needs and goals.
Why You Should Refinance Your Home Loan in 2024
SIBOR Being Phased out
If you haven’t switched to a SORA home loan already, this is a great time to do so. By the end of 2024, SIBOR will be phased out. As part of the SORA Conversion Package, those who still have a SIBOR-pegged home loan will have their home loan automatically converted from 1 June if they have not switched their loan by 30 April.
Should the new SORA home loan have an unfavourable interest rate, you have little choice but to accept the new terms. By pro-actively transitioning to a SORA home loan under the SORA Conversion Package, you switch without incurring additional charges or extending your existing lock-in period. In the process, you may save money and lower your mortgage payments.
If you’re not sure how to navigate this SIBOR to SORA transition for home loans, you can read our guide or reach out to our friendly Mortgage Experts to help you.
Interest Rates Are Moving Downwards
Currently, fixed rate home loans are more attractive than floating rate home loans. A quick search on our home loan comparison tool shows the most competitive mortgage package (in terms of the lowest interest rate offered in the first year) is 2.90% for a fixed rate home loan and 3.89% for a floating rate home loan (as of 22 March 2024). However, homeowners should consider interest rate movements before choosing a mortgage.
After aggressive interest rate hikes over 18 months, interest rates have finally begun to move sideways. The latest Federal Open Market Committee (FOMC) meeting concluded on 20 March 2024 and saw interest rates being held steady for the fifth straight meeting.
Furthermore, the US Fed forecasted to make three quarter-point cuts by the end of 2024 despite sticky inflation. As such, experts like Paul Wee, Vice President – PropertyGuru Finance, believe mortgage interest rates will fall further.
By refinancing at the right time, you could take advantage of these interest rate fluctuations. Scoring the best deal on the market can lower your mortgage payments and save you more money. Choosing a home loan with a shorter lock-in period (i.e., a one-year lock-in period) would offer you more flexibility to refinance your home loan in the future.
If you want to learn more about the 2024 outlook of property prices and mortgage interest rate movements, watch our latest webinar.
4 Benefits of Refinancing Your Home Loan Your Mortgage
| Lower your mortgage payments | Secure a more attractive mortgage interest rate or adjust your loan tenure |
| Adjust your loan tenure | Longer loan tenures mean fewer monthly repayments and better cash flow, but this means you spend more on overall interest costs. |
| Consolidate debt | Useful if you are someone who has previously incurred high-interest debts and wants to manage your debt better |
| Use your home equity to meet your financial goals | Applicable only to those with private property |
To find out the various benefits of refinancing, we spoke to PropertyGuru Finance Mortgage Experts, Apple Tan, Ben Goh, and Ethan Ng for some input.
1. Lower Monthly Repayments
The biggest motivator for most to refinance their home loan is to save money. To lower your mortgage payments, you can secure a more attractive interest rate and/or lengthen your home loan tenure (although the latter will incur higher overall interest costs).
Some might argue that cost savings from refinancing aren’t significant enough. However, as mentioned, depending on your loan package, subsidies and promotions are usually available to help you cover legal and valuation fees. Over a long period, these amounts add up!
2. Ability to Adjust Loan Tenure to Suit Financial Needs
As mentioned, refinancing your home loan also allows you to adjust the tenure of your housing loan to suit your financial needs better. By extending your tenure (i.e. the length of your loan), you can ease cash flow and make your monthly repayments more manageable.
However, this move does increase your overall interest costs because you’re agreeing to repay your loan for a longer period. Do consider carefully and think about what you’re freeing up this cash for.
For example, if you suffered a loss in income and are struggling to make your monthly mortgage repayments, refinancing with a longer tenure can be helpful. However, if you’re just extending your tenure to lower repayments so you have spare cash for frivolous purchases and expenses, then it may not be advisable.
On the flip side, you may be looking to repay your housing loan in a shorter amount of time to have peace of mind and be able to use your cash on hand to meet other financial purposes. One way to do this is to refinance your existing home loan with a higher monthly instalment and shorter loan tenure.
3. Debt Consolidation
Additionally, if you have previously incurred high-interest debts (e.g. through personal loans), you may refinance to a debt consolidation loan. This allows you to consolidate all your existing loans under one loan, making it easier to manage your monthly debt obligations.
Interest rates on debt consolidation loans are generally much lower compared to other loans, such as credit card loans and personal loans. Credit card loans have interest rates that could go as high as 24% per annum, while home equity loans typically have interest rates as low as 1% per annum.
However, that said, Ethan Ng, Team Lead, Mortgages, PropertyGuru Finance, emphasised that your eligibility to take up a debt consolidation loan would depend on “whether or not you have adequate debt allowances and a good credit score”.
4. Ability to Use Your Existing Home Equity to Meet Your Financial Needs
Finally, through cash-out refinancing (also known as home equity loans), you can utilise your existing home equity to meet your financial requirements.
Those who have private property can use it as collateral to access a larger loan amount and get interest rates that are more attractive compared to other unsecured housing loans. This home equity loan amount is subjected to various factors, such as the current market value of your property, your outstanding loan amount, and how much CPF you’ve used for your property purchase.
When you take a home equity loan, you can ‘withdraw’ the funds at your discretion rather than cashing out all at once. These funds can be used for various purposes, such as meeting your debt obligations, investing in the stock market, or using it to start a business, etc.
The approval of your home equity loan application is subject to the individual bank’s discretion. On top of the monthly repayments you’ll have to make, you’ll also have to consider costs such as legal and administrative fees, which range from $3,000 to $4,000. You’ll also have to keep within the required Loan-to-Value (LTV) limit.
According to Apple, “the turnover time for approval of such loans is about a week, after which you can withdraw the funds at any time once the loan has been disbursed to your account”.
Looking to Refinance Your Home Loan in 2024?
At the end of the day, if you find yourself stuck with a housing loan interest rate that is too high, do not fret! In this article, we hope we’ve shown that refinancing can be useful when planning and managing your finances.
Part of keeping good mortgage health is keeping an eye on the market so you can refinance your home loan at favourable moments. This year might present good opportunities for those who can refinance their home loan in 2024.
When refinancing their home loan, homeowners should exercise financial prudence. Still unsure of whether to refinance your home loan or which refinancing plan suits you best?
Connect with one of our PropertyGuru Finance Mortgage Experts today. Our experts can assess your financial situation, compare the various refinancing offers across all major banks, and help you land the best home loan refinancing offer. The best part? It’s all free.
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