Refinancing a home loan

[Dr.Strangelove]

Hi all,

First time forum poster here.

I have a question in regards to changing a home loan. Currently my home loan rate is at 1.9%. This is a fixed rate for 35 years. We built 5 years ago. Just this week we were asked by Ikeda bank if are interested in changing our home loan. They can offer 0.7%. This is a huge difference but I wonder if after all fees and charges if they can deliver such a low rate. I heard around 1% of the loan will be charged as a transferring fee.
Oh, and Ikeda bank will throw in some form of health insurance too. Too good to be true?

Should I look into this further? Shop around for an even lower rate?
Do you have any personal experiences you can share?

Many thanks in advance,

[sutebayashi]

I started at 1.98% for 35 years, and a year later when Kuroda went minus interest rates, refinanced with SBI net bank. Now I have 1.00% fixed for 30 years, but am doing early payments.

Hefty upfront fee to refinance with them, but a big winner long term.

These days their rate has gone up to around 1.20 so I did it at a decent time.

Be sure you are being offered fixed, not floating rate.
I’d be wary of free insurance gimmicks. But you can likely find an attractive refinancing option given your current rate, I suspect.

[Dr.Strangelove]

Hi sutebayashi,

Thanks for the reply.

That’s great you could lock in a 1% fixed rate!

I’ll start shopping around and be sure to get a fixed rate.

I wonder how much the refinancing fee will be. I know in the long run it’s worth it but might need to save up if the fee is very high.

Cheers!

[sutebayashi]

With my place SBI, think a million yen or two in costs, depending on how large your new loan will be.

They have simulation calculators here
https://www.netbk.co.jp/wpl/NBGate/i080103CT

But I honestly found it too confusing to know which exact rate I should plug in, and went to SBI money plaza where they basically just served as a concierge to get through the process.
http://sbi-moneyplaza.co.jp/02_services ... _sumishin/

The fee structure depends on the lender, and you may find for your circumstances you might get a better overall deal paying a smaller refinance fee but higher interest rate, with other lenders. SBI has high fees but low rates in my case.

One could always go for floating rate too if you are thinking rates will stay low in Japan for the duration of your loan. Personally I just wanted to lock in my monthly cost and then never worry about it. It’s like paying for insurance against interest rate risk.

One other thing you can try is tell your current place that you are thinking of refinancing elsewhere. They may offer you a lower rate and little fees, if they want to keep your loan on their books. I know a guy who did this repeatedly with his loan with a megabank.

[WageSlave]

I just refinanced a home loan.

I go a super rate from a different bank. 0.5% for 10 years.

But with all of the closing costs and hassle of switching banks I wound up just refinancing with my current bank. I went from 1.8% down to 0.9 %. 10 year fixed. House will be paid off at the end of it. Saved about 900,000 yen.

So using a second banks offer to negotiate with your current bank is a good strategy.

Sean

[Dr.Strangelove]

Hi again,

Its taken some time but we have made some progress in refinancing our home loan.

We will stay with our current provider. It is complicated, but changing to another lender is a big hassle with similar rates so not really worth it.

We have decided not to take the insurance option (we don't have to pay back the loan if diagnosed with cancer or become incapacitated) saving around 1,000,000! We may look into other more worthwhile insurance options.

So the big question we have is to pay off the faster at a slightly lower rate or slower with easier monthly payments.
Current Plan. 30 years at 2.2%

Here are our options.
Fixed rates.
Plan 1. 29 years at 1.390%
Plan 2. 20 years at 1.310%

Both options reduce our total end payments by A LOT!
The differences between 1 and 2 around ¥2,600,000.

So pay off faster, save more in the end but have higher monthly payments OR lower monthly payments and use the money elsewhere as savings or investments?

We are leaning towards the 20 year option.

Any thoughts, questions, advice?

As always, and feedback is much appreciated

[ricardo]

Plan 2

You owe money

Pay it off as quickly as possible.

I’m on 0.95% from a regional bank fixed for 10 years. After that it rises dramatically. I don’t care because I’m going to pay it off with my pension lump sum.

Everyone’s situation is different. And, importantly, could change with time. What if you get an inheritance? What if you lose your source of income?

But, look, honestly borrowing money at around 1% is a no-brainier. In my country of birth I’d be on around 4%

And value your time. Spend hours and hours getting quotes. Spend time checking the markets. Save a bit of money. Or, as I truly believe, invest your TIME. Take a walk. Listen to your loved ones for a change. Do something different.

[RetireJapan]

Tough one. The best answer for you is going to depend on your feelings.

I have a 30 year floating loan (currently at 0.5%), and even I'm tempted to pay it down early (my bank allows extra payments without charging fees).

Can you overpay if you choose the 29-year loan? If so that would give you some flexibility re: the monthly rates. Or if you need the discipline, maybe go for the 20-year?

[sutebayashi]

I think either is ok, way better off refinancing either way.

I make the odd early payment on my mortgage. I like the flexibility I get for 10 or so basis points, for a longer term.

In this respect the remaining duration on my loan is a “worst case” scenario. But if you were totally comfy with higher payments over a shorter duration, why not.

[Dr.Strangelove]

Thank you for the input.

We have decided to go with Plan 1. 29 years at a fixed rate of 1.1%.

The monthly payments are easier and we are happy with the rate.

We are able to make early payments with no penalty and will set aside money to make extra installments on a yearly basis depending on our situation.

It's a big relief to have made a decision and in the long run will be saving a lot of money


Cheers,