What Is A Good Interest Rate On A Home Equity Loan

What Is A Good Interest Rate On A Home Equity Loan – Financial Planning Debt Management Personal Finance | Why You Should Refinance or Refinance Your Home Loan in a High Interest Rate Environment by Lionel Lee, Article | May 15, 2023 | 8 minutes of reading

If you’ve purchased real estate or refinanced your home in the past few years, your home loan interest rates will likely be lower or at least more favorable than they are now.

What Is A Good Interest Rate On A Home Equity Loan

Near-zero interest rates reversed course in 2022 and reached their highest level in years, with competitive home prices rising to 3.6% in April 2023.

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Late last year, 33-year-old Clement Shea faced rising home loan interest rates. But towards the end of their floating home loan security period, they realized that their mortgage payments had increased from $2,396 to $3,447 per month – that’s $1,051!

So they started looking for options to manage their home loans without overburdening themselves or their budget too much to better manage cash flow.

If you’re in a similar situation to Clement, there are some things to consider when refinancing your home loan in today’s high interest rate environment.

Generally, there are two types of home loans offered in Singapore: fixed rate home loans and variable rate home loans.

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Fixed-rate home loans, as the name suggests, have a fixed interest rate that does not change during the lock-in period, which is usually two to five years.

If you want certainty about how much you’ll be paying on your home loan each month, a fixed rate home loan will give you just that. This gives you better control over your monthly budget, and if interest rates rise, you’ll be protected from increases during the lock-in period. But the opposite is also true: If interest rates fall, you may pay more than market rates.

Floating rate home loans, on the other hand, have variable interest rates. This type of home loan is linked to a base rate such as the Singapore Overnight Average Rate (SORA) or the Singapore Interbank Offered Rate (SIBOR). These reference rates may increase or decrease and vary depending on market conditions. For example, SIBOR and SORA interest rates rose sharply in 2022 alongside a series of interest rate hikes by the Federal Reserve.

So what does this mean for variable rate home loan borrowers? If you have a SORA-tied home loan and SORA interest rates rise, your monthly payments will also rise.

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Floating home loans are an option if you are comfortable with changing your monthly mortgage payments. The main advantage is that you can pay less next month if your mortgage interest rate falls.

For Clement and his wife, they took out a variable rate home loan with a two-year lock-in period for the first time in 2020 when interest rates were close to zero. When interest rates were at their lowest, their mortgage rates were about 1.25% per year. But when interest rates rise in 2022, the couple finds themselves paying a mortgage rate of 4.85% per year, giving them $3,447 per month!

As they approached the end of the lock-in period at the end of 2022, they began exploring available loan options and found a suitable option to refinance.

Since he refinanced his home loan, he now pays the loan at an interest rate of 3.35% per annum. His monthly payment has decreased significantly and is now $2,711 per month. By refinancing his home loan, Clement saved $736 a month. Imagine if he hadn’t refinanced the home loan!

Keyword:reasonable Interest Rates

Clement and his wife decided to take out a fixed-rate home loan when refinancing their mortgage because they believed it would “remain competitively priced after considering 2023 mortgage interest rate projections.” -Together we will reduce our risks in the long term.

Market factors indicate that the chances of mortgage interest rates being lowered in the next few months are low. In fact, interest rate hikes are not expected to subside until the second half of 2023.

Although interest rates are high now, they will not always be this way. As they say: “What goes up must come down.”

If you think interest rates are likely to fall soon, you may not want to limit yourself to a fixed-rate home loan with a long lock-in period. This is because when interest rates fall, you may end up paying a higher interest rate on a fixed rate home loan compared to someone with a variable rate home loan.

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That’s why Clement agreed to a one-year fixed housing loan. This gives it a good chance of achieving a lower rate in late 2023 if market conditions change.

Like Clement, the main reason someone would refinance a home loan is to find a way to pay less for their home and maximize their savings.

By looking at the offers available in the market, you may be able to get a more competitive mortgage package than if you stuck with your current home loan provider. For example, you could get a lower interest rate on your mortgage or switch from a SIBOR-linked home loan to a SORA-linked home loan. In the process, you can refinance your home loan and save hundreds if not thousands of dollars (depending on the size of your home loan).

If you’re not sure where to start, that’s where a mortgage professional can come in. With their in-depth understanding of the Singapore mortgage market, they can guide you in refinancing your home loan and streamline the process.

How To Make Sure You Are Getting The Best Interest Rate On Your Long Term?

Clement and his wife tried to look around, but “there were too many things to compare.” They find that with PropertyGuru Finance Mortgage Expert, the numbers and conditions associated with home loans are simplified, making it easier for them to make an informed decision. If they had any questions, all they had to do was ask.

For those who want to improve their cash flow to have more cash on hand, you can change the term of your loan. A longer loan term will mean lower monthly mortgage payments, but a longer loan term also means you’ll technically pay more in interest overall.

If you want to pay off your home as quickly as possible, consider shortening the term of your loan by making larger monthly payments. This will reduce the total amount of interest you pay.

However, be financially responsible and make sure you can afford the extra payments. You don’t want to find yourself in financial trouble.

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Keep in mind that refinancing a home loan comes with certain conditions. For example, if you refinance during the embargo period, you will face prepayment penalties and possibly a subsidy refund. Ideally, you can start exploring refinancing options three to four months before the insurance period expires. This way, you can have a “smooth transition” to your new home loan.

In these difficult economic times, when inflation and interest rates are high, it makes sense to manage your home equity loan effectively. Whether it’s through refinancing your home loan or different mortgage repayment strategies, you want to make sure you’re getting the “best” deal.

And being able to save even a few hundred dollars a month helps you stay on track toward your long-term financial goals.

With a range of refinance content, guides and online tools, PropertyGuru Finance can help you make your mortgage journey hassle-free. From comparing interest rates to getting a quick overview of what’s happening in the mortgage market, you’ll learn how to better manage your home loan. And if you need some extra help, the mortgage experts at PropertyGuru Finance can give you impartial, straightforward home financing advice. The best part? It’s free!

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