The servicing of the housing loan is one of the major expenditure items for most Singapore households. A properly executed refinancing can free up much needed cash-flow for savings or investments.
1. It is not enough to just keep in mind the date of the lock in period of your housing loan. The required notification period is also of paramount importance if not more essential.
One will need to read the terms and conditions of your loan contract clearly in particularly for the portion on the notice period required. Generally, it is one month notice for partial repayment and 3 months notice period for full repayment via cash repayment or refinancing from other bank.
This is similar to an employment contract. You cannot just happily decide to resign suddenly and disappear the next day from work. Your employment contract contained a clause that states clearly your notification period to Employer before your last day of work and failing which you will need to pay compensation in the form of cash in lieu of short notice.
This will mean that generally, you will have to pay the standard higher interest rates compared to the special rates under lock in period. This can lead to a huge jump in interest expenses until the end of the notice period. This can range from a hundred dollars to couple of hundred dollars per month depending on the quantum of your housing loan. DO NOT give the bank an excuse to earn that extra from you.
Also, once saddled with the threat of higher interest, one may panic and just decided to quickly re-contract another 2 to 3 years package with the same bank without looking into the market for better packages from other banks to get the best deal.
Always set an alarm on your mobile phone or write a post slip note and stick it on your refrigerator door or home notice board 4 mths before the loan is due. Be very "KIASU" over it. We are talking about the biggest household expenditure where most of us spent decades servicing it and the savings from a well executed refinancing can save thousands of dollars in 2 years. Do not expect your banker to care about saving as much money as possible on behalf of you. Their interest is not aligned with us.
The refinancing procedures with the new bank should ideally take place 3.5 mths to 4 mths before the last date of the locked in period. This is to give adequate lead time for yourself to study and compare various housing loan packages available and also for your new banker to get the whole bunch of documents from you and then process internally for the letter of offer. After the letter is signed off, only then will the other bank's solicitor write in on behalf to your current banker to serve notice and to commence the administrative settlement of inter-bank debt. For those who are unfortunately stuck in the paper work and could not complete this on time, please serve notice personally to the bank via a formal written notice.
1(ii) Some housing specialist at bank branches mentioned refinancing does not need to serve notice at all as it is a different case. Only partial repayment or full repayment in cash need to serve notice. Is this statement true? What if the officer at the branch refuse to accept serving of your notice?
If the terms and conditions clearly state so, then this must be adhered to. No way out of it. If the officer does not accept, please write down in black and white and emailed them back. Yes. the officers at the bank do screw up as some of them may be new joiners and not familiar with the internal procedures. I experienced it a few times myself with such bank officers. This brings me to my next important point on documentating everything formally, which will be extremely useful during times of disputes or screw up by the banks.
2. Ensure you document down the exact communication with the Bank's Housing Specialist. This is even more so if many conversations took place over the phone. Write an email to document what had been discussed in order to protect your own rights or as evidence in the event of future dispute.
I will share one nasty experience here with one of the banks with regard to my personal housing loan taken out a few years back.
It started with me looking out to refinance my investment property and I wrote in to the Housing Specialist of the bank asking for the latest fixed rate interest loan package available as I was worried over rising interest rates (I got a phobia on this as I paid before over 4% interest expenses on my first investment property and the monthly servicing of interest expense was just crazy).
The bank officer replied and listed down the packages. I looked at them and wrote back in black and white to say that I want a "fixed" interest rate package. The officer then recommend the package to me and then send the revised loan contract with a new 2 years locked in period for my signing off.
Strange thing is that after 10 months, I noticed that my monthly installment payment are not similar and is in fact creeping upwards. I was devastated and realised that I have been mis-sold on my loan package. I quickly called up the bank and explained the situation. However, the reply I got back from the bank was chilling. If I had disagreed on the package on offer, why did I sign off on it without reading through in detail? As far as the bank is concerned, the contract is legally binding. Now, the contract has many clauses which are just too technical for me to understand and I have mainly relied on the email instruction to convey on what I wanted over for the loan package. Never would I imagine such a screw up by the bank officer to occur which led to the predicament I found myself into. The bank officer kept insisting the package was fixed rate. Later I found out that his definition of "fixed" for him is referring to a stable benchmark rate that based on historical trend, should not increase much overtime.
Given the unjust incident, I went back to my email account and dug out the email correspondences and wrote in to complain the unfair handling of my case. All the while, I was praying that I have not deleted them. Luckily for me, I managed to retrieve the emails albeit spending a few hours on it. The bank then re-looked into it and then mentioned that "out of goodwill" (since I can produce the supporting correspondences), they will let me re-finance to the prevalent fixed interest rate package which was at an all time high of 2.38% compared to the initial point in time 10 mths back, without penalties. However, they required me to re-lock in another 2 years from the point of the new package on offer. I had no choice but to accede to their condition as I was at their mercy. I simply did not have the financial resources to mount a lawsuit over this case of mis-selling by the bank which had plenty of financial muscle to bulldoze over me.
Hence the importance of the email documentation in terms of black and white. Of course, the other main take away from this is that besides the formal email correspondences to be filed, one must not take things for granted during signing off on the loan agreement and to press for details on any part that one does not understand or do not have adequate comfort.
3. Re-financing to lower interest rates may not be always worth it. There are upfront legal fees (S$2K to S$3K) and valuation fees (around S$500). Also be THICK-SKINNED and asked for freebies.
For example, if the new desired loan package chosen is 2 years and lowered interest expenses by only S$100 per month, this will allow you to save a mere S$2.4K over 2 years relative to the best offered loan package from your current bank, then the total additional cost of S$2.5K for legal fees and valuation fees plus the time spent to go through all the hassle will simply not be worth it.
Also, be thick skinned...ask for shopping vouchers, legal fee rebate, or free home fire insurance. You never know how much extra you can squeeze out of the banks or their sales agent. Banks are making lots of money out of the interest expenses that you are servicing. Any such "freebies" will be peanuts to them.
Summarising, I seems to be always unlucky in terms of having unpleasant and strange encounters financially with banks and also insurance companies (Pls see "My Struggle with Insurance Policies" post here). I can only say that growing older does make one wiser. Also, thanks to the Invest Bloggers Community, the online readings have certainly shorten the steep learning curve in terms of my personal financial management.
No comments:
Post a Comment