More often than not, individuals keep on searching for lower rates of interest loans to see if they could possibly apply for them and reduce the interest burden on the existing ones. In instances where one’s financial status has changed maybe to a lower income per month, could be a possible push to getting lower interest loans, and the essence of replacing an existing loan comes into effect. This would in turn save on the financial burden if proper calculation is done.
Before making the final decision on replacing the current loan, whether an auto loan, mortgage, car loan, or even an entrepreneurship loan, there is a need to analyze the benefits and risks of such applications. The legitimate Singapore moneylenders will assist in this information to see that the borrower succeeds in the refinancing project.
More often than not, people keep making several mistakes that potentially lead them into deeper debts and at risk of losing more money than when it would have been on the initial loan. Singapore is not an exception and most people keep on repeating the mistakes.
These mistakes are analyzed below to help borrowers avoid such errors in the future.
1. Selling the property before enjoying the savings that come with refinancing.
Whereas it sounds a good deal to refinance, there lie several expenses such as the conveyancing fee, which rises to close to $3,000. Apart from that, there is a number of bank costs such as valuation costs, insurance costs that come along with refinancing.
Besides this, a good borrower will work towards seeing that some savings belong made from the new loan. For instance, is one took $1,000,000 payable in 5 years at 20%, then the monthly installments will be$33,333.
However, with a new refinancing of a lower interest rate of 15% for the same amount, the monthly installment will fall to $29,167. There will be a saving of $4,166 every month.
But even though this may look lucrative, remember that this profit will only be realized after all the application costs have been catered for. At times this may not work well, and the price may be higher than the previous loan. This is something that many people have been hit and lived to regret the better part of their investments.
It’s imperative then to take charge of such costs and avoid future regrets by analyzing the costs possibly using a financial analyst to work out on them.
2. Failure to check on the new restrictions and the qualifications.
With the emerging trends of the economy, several restrictions indicate the extent to which one is required to borrow. In the ‘90s, very few restrictions were put in place in comparison to today’s restrictions. One could get in the banking hall with the required papers and leave with money in the account. This is not so for today, where there are many restrictions, such as valuation, visitation, and other costs that may come along with the current limits.
At times, one may be subjected to a shorter repayment period, which may increase monthly repayments. All these added together may cost so much that it was better to remain with the previous loan.
3. Use of loan Comparison site presuming that there will be a better deal.
In today’s technology, thousands of information is found online. The same case lies in finding a loan comparison tool with lots of information that may look true, but in the real sense, the inventors are just there to make a kill from their advertisements. While the enticing information may look a good deal, things are always different on the ground. The advertiser may be only a broker looking for a commission, but in the real sense, the loan ends up becoming highly rated. Therefore, it’s indeed important to take care of using the loan comparison sites, take them for gospel truth, and end up paying more than what was initially a pain in the original loan.
4. Getting a Refinanced Loan into what may seemingly look like a cheaper package.
When looking at the Singapore Interbank Offered Rate (SIBOR), one will find that the rate is one of the lowest prices available. This is because, for the first three years, the interest rate is low and mostly manageable, but as the fourth year approaches, things take a new turn with higher interest rates. This is all because of the fluctuating rates in SIBOR loans.
People refinance with a mind that in the next three years, they would possibly refinance to a lower interest when the current loan interest rises. But this becomes a grievous mistake, which at times is costly to the borrower.
It’s worth noting that SIBOR loan rates fluctuate as much as the Fixed Deposit Home Rates, and one may end up landing into a loss.
5. Limited or lack of finances on the onset of refinancing.
Any project, whether new or old, requires some capital to lay a foundation over how to start it. Many people tend to ignore this factor and start the process without money at hand to aid in catering for the requisite expenses. As mentioned at the beginning, one would require to a tune of $3,000 starting off the project. We would advise that without such kind of money, do not be in haste to start the refinancing project as it will drain any savings that were not intended for the project. This is because one would be forced to get another loan to cater to the initial costs from a credit card, from friends, which all call for an interest expense.
Once again, take care and avoid any refinancing costs if they are already limited.
One thing to remember is that the main aim of refinancing is to save on the costs with the reduced interest rate payment. Then if that is the way forward, keep off all unnecessary refinancing costs that would eventually hike your expenses, instead look forward to a gain in the savings that one would achieve after the end of the period.
The future present value here would work best if ascertained before the onset of the refinancing project.