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What TDSR Changes Mean To Refinancing For Homeowners
MAS today (1 September 2016) announced a small minor change to a cooling measure that was introduced years ago. This tweak should have been in place at the introduction of the TDSR policy from the start as homeowners who were hardly interested in speculating properties were affected by it financially.
As TDSR was conceptualised to tighten credit that was feeding the property price monster. And it had a blanket effect on the whole market whether you were buying property or not.
Well… better late than never.
The group that was the most innocently affected were homeowners who got “trapped” in their existing housing loans because they could not refinance their mortgages due to not meeting credit criteria laid out by TDSR.
This might look like a small problem on the surface.
But when you add the fact that most home loans in Singapore are structured with interest rates that increase in the long run, it doesn’t feel good at all when you are trapped into one. The irony was that there are loans with lower interest rates in the market, and homeowner still could not refinance not because they will be penalised by a lock-in period, but because they couldn’t meet the stringent criteria determined by TDSR.
The new adjustments allow homeowners to exceed the TDSR threshold when refinancing regardless of when they bought their properties. Provided 2 conditions are met.
- commits to a debt plan with his financial institution to repay at least 3 percent of the outstanding balance over a period of not more than three years; and
- fulfills his financial institutions’ credit assessment
It must be noted that this new rule applies to owner-occupied properties. Investment properties are not implicated.
Before you start going out to source for the best rates for housing loan refinance, do also take note that your current loan is not necessarily charging you a above market rate. You could very well be on a one that is BELOW market rate due to the extraordinary low interest rates available in previous years.
Where you see the interest rate trend heading can also great affect the decision to make.
For example, if you think that interest rates will fall, you might want to wait before taking action. Because if you are to replace your existing mortgage with a new one now, you will inevitably get into a lock-in period. This might prevent you from taking advantage of even lower rates in future.
And if you expect interest rates to rise in the short and medium term, you might be tempted to take action as soon as possible so as to secure a low rate before the hike happens. Even so do look out for types of loans that have “level” spreads throughout the years. It will be the smarter thing to do in a rising interest rate market.
Here are some things to consider that might affect the outlook for interest rates in future.
- There is a downward trend in interest rates in major economies in Europe and also Japan
- Market watchers had expected US to raise interest rates at least a few times in the last couple of years. But it only happened once… and only with a “hike” of 0.25%… if you can even call that a hike…
- The US is $19 trillion in debt and going deeper. Make your own assessment of what the implications are.
As a homeowner, you have to make your own decision of whether to refinance or not. And also when (if yes) to do it. Just remember not to go with market hype and practice a herd mentality when making financial decisions that can affect the whole family.