Mortgage forms one of the biggest household expenditure and the sooner you learn to manage that, the earlier you get to stress-free living, not to mention the prospect of a potential early retirement.
However, can you really manage mortgage costs when interest rate is determined largely by macro-economic factors beyond your control? Well, let’s just say in our business of mortgage brokering, we’ve seen clients saved tens of thousands in interest costs just by getting their timing right in the cycle. For example, locking down a 3-year fixed rate at 1.25% back in early 2022 when Fed just started hiking, as opposed to getting trapped in a 2-year lock-in period on a floating rate at over 4% over the same period. With the sheer number of years in our business, we’ve also seen the reverse predicament happened back in 2019, when some clients signed on floating rate while everyone was clamouring over fixed rate. They ended up laughing all the way to the bank when their interest rate nosedived to 0.50% in the midst of Covid-19 pandemic and they were paying next to nought. Others can stuck with fixed rate as high as 2.58% when they overcommitted in early 2019 when fear of escalating interest rate sets in. Sounds familiar?
Sure, no one can foretell black swan events like Covid. Maybe there’s some element of luck there. Still, anecdotal evidence we see over the years suggest that it pays to stay watchful on the interest rate cycle. It will pay great returns not just in helping to keep your mortgage costs down, but potentially helping you to avoid market sell-downs for your investments!
Here’s a list of 8 things you should do to stay on top of mortgage costs:
1. Negotiate Early 4 Months Before Your Lock-In Expiry
Most people come to us too late to review their mortgage rate. Remember you will need two months’ notice to your existing bank to redeem the loan. It pays to start the process early as the new lender will always give you up to six months to bring your loan over, from the date of the offer letter. This presents an excellent window of opportunity for you to lock down lower fixed rates when interest rate cycle is going up; likewise you can lock down low interests above the SORA for floating rate packages when the cycle is coming down.
2. Keep Track of U.S. Interest Rates
If you are not aware, we are price-takers when it comes to interest rate as Singapore controls inflation via managing its currency vis-à-vis a basket of trading currencies, rather than through a Central Bank’s interest rate policy. As such, to know how interest rates here will move, pay close attention to inflation and interest rate trends in the U.S., particularly the rhetoric that comes out of every U.S. Fed’s rate-setting meeting known as the Federal Open Market Committee (FOMC).
3. Work with a Mortgage Broker
This may sound self-serving, but nonetheless true. Most of us lead busy lives with our career and kids. The best way to achieve the first two tips above – early review of your mortgage rates as well as keeping tab on Fed policy and interest trends – is to work with a trusted broker for your Singapore home loan.
If you have yet to partner with one, consider working with my company MortgageWise.sg as we have helped thousands of clients save on interests since 2014!
4. Keep Your Loan Above $500,000
Most people are fixated on paying down their mortgages early, especially in the current high interest rate environment. Yet, it pays to keep the loan above $500,000 for the best possible re-mortgaging deals as banks tend to offer the lowest rate as well as the highest cash rebate for the bigger loans. Furthermore, interest rate will not stay this high forever, and when it eventually comes down, it may always be always feasible for you to go to the bank and ask for the loan back. This is the case for HDB properties. Even for private properties, it’s often challenging to ask for a home equity loan due to the stricter TDSR criteria or change in one’s income situation over time.
5. Stretch the Tenure
Some people dislike the idea of lengthening the tenure of the loan in order to ease the cash flow with a lower monthly repayment. This is because you do end up paying a lot more interest on the whole, if you do finish servicing the mortgage for the entire mortgage term. But the truth is most people do sell their properties within a period 10 years, so the actual interest paid in the period may not be a lot higher, considering you do trade off that cash flow every month which may allow you do other forms of investment.
It will be too lengthy to demonstrate that here with numbers but you can easily D-I-Y using a mortgage calculator to see the total interest paid in the first 10 years of the loan.
6. Stay Open to Changing Banks
One common mistake homeowners make is the reluctance to leave their existing bank especially when they can get more favourable rates and terms refinancing to a new bank who is more hungry for their business. This is the beauty of free market competition which we all ought to embrace. Even that 0.1% difference in rates would stack up, along with cash rebates and various incentives, to be worth $15,000 over 10 rounds refinancing opportunities in a 30-year mortgage term.
And with digital banking and mortgage application for most lenders these days via MyInfo using SingPass, the whole process can actually be quite a walk in the park. That’s definitely worth the simple task of applying and making that one trip down to the law firm to execute some papers.
7. The Most Powerful Way to Reduce Interest Cost (Instead of Repayment)
When you work with progressive mortgage experts like us, we don’t stop at helping you save that 0.1% every now and that, we’ll go the extra mile for you. The final two tips are cutting-edge advisory that you won’t get from your usual mortgage broker who is usually more interested to close that sale with you. One of the most powerful way to reduce interest costs is simply to “buy a second property without actually buying it”!
We have a whole article that explains this well which may be worth your time to read.
8. Become Mortgage-Free in 6 Years!
Finally, the ultimate and highest value I could bring to you as a mortgage advisor, is to show you how you can effectively become mortgage-free in 6 years. For that, get a copy of my new book just released which you can grab a copy here. You may baulk at the cost of $40, but not when I tell you it’s a work book that reveals a proven methodology I use which will help to generate retirement assets for a middle-class salaried worker that’s 100,000 times that price at $4 million!
This blog seeks to improve financial literacy amongst Singaporeans and provide the “best-in-class” knowledge for financial planning to help achieve the best retirement plan. We also hope to become the conduit to channel funds from the well-to-do in this country to the poor and weak as part of our social mission.
| ACTIONABLE STEPS AFTER READING: 1. Keep proper tracking and reminders of your lock-in expiry dates especially for those with more than one mortgage to manage. Start looking out for options as early as 6 months before the expiry. 2. You are strongly encouraged to look for and partner with a trusted mortgage broker for your mortgage and investment needs, just like how you would need a good insurance agent for your protection needs. 3. For the more common approach of managing mortgage costs, consider some of the tips shared like tracking U.S. Fed by watching CNBC and reading up on financial news, etc. It may take some time but these would be worthy investment of your time which will also help in your finances. 4. For more profound ways managing mortgage costs (last two tips), do read the article link as well as get a copy of Mortgage-Free In 6 Years. |
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