WE WILL probably never see interest rates lower than now. Here is how you can take advantage of the low rates by re-financing your home loan.

TEXT/GRAPHICS: LARRY HAVERKAMP AND MAROO

It's harder to shop

In the old days - three years ago - banks used to post home loan rates on their websites. It was easy to go to six or eight websites and compare. It also made lending more competitive.

It's not like that any more. Few banks post their rates online. You have to call and they promise a bank officer will call you back the next day.

When - and if - they do, they usually ask more questions than they answer. It is part of the bank's strategy to 'know your needs'.

Sound familiar?

It's a page taken from the life insurers' play book. Insurance agents typically do a 'needs analysis' soon after getting a new customer.

Supposedly, it is to sell exactly what the customer needs.

Maybe. But it also gives financial institutions a chance to size you up.

They learn your level of financial sophistication, what you can afford and how much they can sell you.

Like life insurers, banks also want you to buy their high-margin products. For banks, that means variable and fixed rate loans tied to board rates.

While they are profitable for banks, they are costly to borrowers. Your best bet is pegged-rate loans.

If you switch your home loan to another bank, it's called 're-financing' or 'loan conversion'.

If you go back to paying the low first-year rate at the same bank, it's called 're-pricing'.

Most people are better off re-pricing. By not switching banks, there is no need to pay again for legal and other fixed costs.

Another strategy is to form a group.

Tell banks that a few people want to re-finance their home loans. For sure, banks will be excited at the prospect of all that business.

All you need are 6 or 8 friends who are interested in re-financing. Of course, they are under no obligation to go through with the deal.

The key is to shop around. Once you have a low rate, take it to the other banks and ask if they can do better.

You are likely to end up with the lowest rate banks can offer without losing money.

A final word. The best advice is probably: 'Don't neglect refinancing.'

When your lock-in period ends, you can save by re-pricing or re-financing your loan.

Don't let your bank keep raising your home loan rate year after year.

Call the bank today and say: 'Re-price!'

Pegged rates are best

ARE HDB loans really best?

The advantage is they are more stable and haven't budged in the past 10 years.

Bank rates are more volatile but also cheaper. The lowest bank mortgage is a 'pegged' interest rate. It costs about 1 per cent less than HDB's 2.6 per cent. It means you save about $1,000 a year for every $100,000 you borrow.

Pegged rates are tied to a base lending rate known by abbreviations like SOR and Sibor. They are published daily in Business Times.

For example, a bank might offer a three, six or 12-month Sibor rate.

The three-month rate will re-set every three months. At the end of each three-month period, it could be higher or lower and you will pay more or less.

If you want a more stable but higher rate, you can choose the 12-month Sibor.

It re-sets every 12 months and is similar to a one-year fixed-rate loan.

For example, the three-month Sibor rate is about 0.7 per cent now, and the 12-month Sibor is 0.9 per cent.

A bank might offer Sibor plus a mark-up of 0.8 per cent. Then, you would pay 0.7 + 0.8 = 1.5 per cent for a home loan that re-sets every three months.

If you re-set every 12 months, you would pay 0.9 + 0.8 = 1.7 per cent.

Banks also offer pegged fixed-rate home loans, which should cost about the same as the 12-month Sibor rate.

If it costs more, it is probably not pegged but linked to a 'board rate'.

Those loans are almost always more expensive, especially after the lock-in has ended. You are better off with pegged rates.

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