Are you paying more than what you should for your mortgage loan?

If you are among those who had took up a mortgage loan in the last few years, you might or already seen an increase in your loan interest rate. The bad news is expect a higher interest rate in the near future as Fed will increase the interest rates again and again.

images (9)Mortgage loans interest are usually peg to SIBOR. In the first week of Jan 2015, we saw SIBOR increased from 0.577 % to 0.620%. That little jump in figures translate into a jump of 7.45%! The experts had forecast mortgage loan interest could even tripled by end of next year. Brace yourself for that’s what is going to be translated into your repayment amount. While you will not see your installment increase by 3 folds, do expect a significant increase in your repayment.

Here’s the good news – There are a few options to minimise the damage.

1) You can do a re-financing with a bank that gives a lower interest rate. There’s quite a few who did this with my colleagues and they managed to save a few grands from their interest. However, this may cost you some administration and legal fees.

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2) Convert it to a fixed rate loan if you are on floating rate. You may pay slightly interest now but you save in the long run. Likewise, you may incur some administration and legal fees.

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3) Assuming the above two options are not feasible, it will be good to re-look into your mortgage insurance to assess if it is still sufficient to cover your loan amount after the interest rate hike. A higher interest would mean a higher debt and your coverage amount should be able to cover this amount.

Do talk to your financial advisers to look at the different options and weight what is best for you. I am contactable at kimheng@firstprincipal.com if you need any assistance with these.

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