SG Budget Babe
Asked on 06 Dec 2019
Is it very troublesome to keep refinancing a bank loan? What are the considerations of which to take? Should I take a longer or shorter loan if I'm comfortable with the repayment amounts?
I'm in favour of a bank loan now because interest rates are so low. For reference, I'm paying just 1.8% on my bank loan for my flat whereas the HDB loan is at 2.6%. That's a LOT of difference.
Of course, the risk is that bank interest rates may go up in the coming years but at the moment it's a risk I'm willing to take, given the huge savings.
Bank loans are currently cheaper. But refinancing may not always be worth it - as you incur a fee if you refinance.
As a bank loan has one of the lowest interest rates now I would take one with a longer period.
Hey there, I recommend you to take HDB loan. Main reason being that you can switch from HDB to bank loan later on, but you can't do it vice versa.
Generally speaking, bank's interest rates have been hovering about 2%, and yes it is not fixed for the whole tenure - as you said you would have to constantly refinance it about 3 years later.
On the loan tenure, the interest rates offered by both HDB and bank are pretty low, so it's actually considered a "good debt". Here is an article by MoneySmart on why it makes sense to maximize the loan tenure:
Top Contributor (Jan)
It depends on how your long-term planning and outlook is. This requires in-depth financial planning for your future.
In most cases, my first choice will be HDB loan - lesser cash outlay for downpayment and fixed interest rate for the loan tenure.
While bank loan offers lower rates, they are non-guaranteed after the lock-in period. Accordingly, re-financing is not free and there are various legal fees to take into account in addition to the time wasted.
Depending on the option that you have chosen, there will be different terms for early repayment. In most cases, I will advise my clients to plan with the long-term in sight. Understand the opportunity cost of your dollar and make a decision that optimises its value.
If possible, consider stretching the loan as long as possible and keep more cash on hand if you need to, e.g. for family planning. When it is possible, make an early repayment to reduce the outstanding loan.
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