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What Is Home Loan Refinancing?
Home loan refinancing is the process of replacing your existing home loan with a new one, typically with a different lender, to secure better terms or rates.
It involves applying for a new loan to pay off your current mortgage, and the new loan may have different interest rates, loan tenure, or repayment structures.
Refinancing is commonly done to take advantage of lower interest rates, reduce monthly payments, or adjust loan tenure.
Why You Should Refinance Your Home Loan?
- Lower Interest Rates: If you have other high-interest debts, refinancing may allow you to consolidate them into your home loan at a lower interest rate to reduce monthly repayments and overall interest paid over the loan’s tenure.
- Reduce Monthly Repayments: Refinancing allows you toextend your loan tenure, making your monthly payments more affordable.
- Restructure Loan Terms: You may want to switch from a fixed-rate to a floating-rate mortgage or vice versa based on market conditions.
- Access to Equity: Refinancing may enable you to tap into the equity of your home for other financial goals, such as renovations or investments.
Home Loan Refinancing in Singapore
Increasing interest rates have begun to appear more often onto headlines of property articles and that could signal a shift towards home loan refinancing.
Firstly, the important thing to note about loans is the interest rate involved. Also, news had been rampant over the possibility of multiple interest rate hikes this year. In order to capture these current interest rates before it increases or get pulled out from the market, the answer is quite straightforward: consider refinancing your home loan.
Comparing refinancing home loan packages in Singapore can be quite a tedious task akin to drowning in a sea of information. Let us summarize the key information you need to take note before you start your refinancing journey.
Are You Eligible To Refinance Your Home Loan?
Before diving deeper into the finer details on the interest rates and packages, it is equally important to check on your eligibility first. Let’s get you reading on the essential information needed.
Lock-in periods
In short, most home loan packages often have lock-in periods ranging from 2 to 3 years.
If you are still within the lock-in period, there is usually a penalty involved if you choose to move your loan elsewhere. Hence, do check your letter of offer to determine your exact hostage (lock-in) period and the penalty fee. In fact, the penalty is usually about 1.5 – 2 percent of the outstanding loan amount – which is a deterrent to most people.
However, if you are currently on HDB home loan, there is no such restrictions. Thus, you can refer to our HDB home loan guide for more details.
Interest review dates
In this case, interest review dates usually applies to SORA linked packages. The banks peg the lending rate onto a reference rate, SORA. These rates are reset monthly or quarterly, and the banks take advantage of this to deter you from redeeming the loan until the day the loan is supposed to reset.
Hence, it is crucial to find out if there is a specific time and day that you can only take action. Otherwise, you may be subjected to pay for a fee again – typically amounts to another 1.5% on the total remaining loan amount. Moreover, this date starts from the day your loan is disbursed, and every monthly/ quarterly/ yearly, depending on the reference rate of your package. To sum up simply, we should only execute on the next available redemption.
Thereafter rates
The next thing to check is when your higher rates will kick in as you will want to refinance 3 months prior. The attractive interest rate that you had signed at the beginning could soon be changing and changing very drastically.
Altogether, it is time to review and get moving. The right time to move is 3 months before the new rates kick in, because all banks will require you to serve a 3-month notice before you port your loan over to another financier.
Subsidy Clawbacks
The final thorn in the flesh left to pull out is to make sure that you have fully benefitted from your existing loan package before you say your last goodbye. For example, most packages would have provided you with sweeteners to secure your business.
Furthermore, these are the legal and valuation subsidies provided by your existing financier. They are not free, unless this relationship is at least 3 years old. What do you stand to lose? In particular, anything from $2,000 – $5,000.
Total Debt Servicing Ratio (TDSR)
Last but not the least, it is time to look at the state of your current finances since you took up the last mortgage. For instance, If you had taken up a new car loan or sign-on additional credit cards, it is factored into the calculation of TDSR. In this case of TDSR, the magic formula is take your total monthly debt obligations divided by your gross monthly income. You can also use this online TSDR calculator.
The good news is that while it can be complicated, it is not rocket science, and there is help available. There are people around who can offer genuine advice and an unbiased point of view before you commit yourself, again, for the next 2-3 years. In fact, you can read more on its benefits here.
Steps to Refinancing Your Mortgage Home Loan
Where To Find The Best Rates For Refinancing For Your Home Loan?
There are many ways in getting the information you need – the diligent way or the smart way.
For instance, the diligent way – taking time off to visit all 16 banks in Singapore, repeating your requirements 16 times, reviewing the multiple packages provided by each bank, scrutinizing the fine prints to ensure there is no hidden fees, the list goes on.
Or, you can go the smart way – contact a mortgage broker, tell them your requirements once, enjoy a cup of coffee while they do the research, hear their analysis and recommendations. Thereafter, discuss with your spouse/partner and make your decision, continue reading lifestyle news on your mobile phone while the mortgage broker prepares all the necessary for you.
Whichever way you choose to go, here is a brief summary of the key information you need to know before signing on the dotted line again.
Types of Interest Rates
Fixed Rates
Fixed rate home loan packages are popular because they provide the stability and security to hedge against other financial risks we may carry. The take-up rate is especially high during uncertain economic times. Also, the security that a fixed rate mortgage offers is offset by the higher premiums it commands. In addition, fixed rates mortgages have interest rates can be fixed for a period of 1 to 5 years.
In the table below, you can find the current best fixed rate home loan packages (for private properties) in Singapore.
For example, the interest rates are fixed for only the first to the third years for the fixed rate home loan packages below.
Following this, the mortgage interest rate will be pegged to benchmark rates such as SORA (Singapore Overnight Rate Average). Hence, this means that the rates will vary depending on the market situation at that time. However, you can also refinance your home loan once the lock-in period expires. Furthermore, with the rising interest rates environment, it is a good time to review their home loan to a more competitive rate and avoid paying additional fees. (For a full comparison of all home loan types, please check our article on best home loans in Singapore)
Bank | SCB | DBS | RHB | HLF | OCBC |
|---|---|---|---|---|---|
Lock-in | 3 Years | 3 Years | 1 Year | 3 Years | 3 Years |
Year 1 | 2.500% | 2.800% | 2.850% | 2.900% | 3.000% |
Year 2 | 2.500% | 2.800% | 4.076% (3MSORA + 0.600%) | 2.900% | 3.000% |
Year 3 | 2.500% | 2.800% | 4.126% (3MSORA + 0.650%) | 2.900% | 3.000% |
Year 4 | 4.026% (3MSORA + 0.550%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.35% (Board) | 4.476% (3MSORA + 1.000%) |
Thereafter | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.35% (Board) | 4.476% (3MSORA + 1.000%) |
Legal Subsidy | Min Loan $500k Legal Subsidy: $1,800 Min Loan $1m Legal Subsidy: $2,000 | >= $500k – $2,000 >= $1m – $2,500 >= $1.5m = $2,800 | Legal & Valuation Subsidy: 0.40% x Loan Amount Capped $2,500 | Cash Rebate: >$250k – $2,000 | Cash Rebate: ≥ $500k = $2,000 ≥ $1.00m = $2,500 ≥ $1.50m = $2,800 |
Minimum Loan | $1,000,000 | $500,000 | $1,000,000 | $500,000 | $300,000 |
Remarks | Free Conversion after LockIn Valuation Subsidy for Refinancing: $500k: $350 $1m: $500 | Free Conversion after LockIn | Free Conversion after 12months Partial Payment allowed up to 50% of the original loan amount after 12months | Free Conversion after LockIn |
| Bank | SCB | DBS | RHB | HLF | OCBC |
| Lock-in | 3 Years | 3 Years | 1 Year | 3 Years | 3 Years |
| Year 1 | 2.500% | 2.800% | 2.850% | 2.900% | 3.000% |
| Year 2 | 2.500% | 2.800% | 4.076% (3MSORA + 0.600%) | 2.900% | 3.000% |
| Year 3 | 2.500% | 2.800% | 4.126% (3MSORA + 0.650%) | 2.900% | 3.000% |
| Year 4 | 4.026% (3MSORA + 0.550%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.35% (Board) | 4.476% (3MSORA + 1.000%) |
| Thereafter | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.35% (Board) | 4.476% (3MSORA + 1.000%) |
| Legal Subsidy | Min Loan $500k Legal Subsidy: $1,800 Min Loan $1m Legal Subsidy: $2,000 | >= $500k – $2,000 >= $1m – $2,500 >= $1.5m = $2,800 | Legal & Valuation Subsidy: 0.40% x Loan Amount Capped $2,500 | Cash Rebate: >$250k – $2,000 | Cash Rebate: ≥ $500k = $2,000 ≥ $1.00m = $2,500 ≥ $1.50m = $2,800 |
| Minimum Loan | $1,000,000 | $500,000 | $1,000,000 | $500,000 | $300,000 |
| Remarks | Free Conversion after LockIn Valuation Subsidy for Refinancing: $500k: $350 $1m: $500 | Free Conversion after LockIn | Free Conversion after 12months Partial Payment allowed up to 50% of the original loan amount after 12months | Free Conversion after LockIn |
SORA Rates
Firstly, at 3.926% interest rate, the cheapest home loan package provided by CIMB in this category of SORA floating rate home loan packages is a steal. As a result of this competitive interest rate environment, most SORA rate mortgage packages are in the range of 3.926% to 4.576% interest rate in year 5 of your mortgage repayment.
Bank | CIMB | SCB | BOC | HSBC | RHB |
|---|---|---|---|---|---|
Lock-in | 2 Years | 2 Years | 2 Years | 2 Years | 2 Years |
Year 1 | 3.926% (3MSORA + 0.450%) | 3.976% (3MSORA + 0.500%) | 3.976% (3MSORA + 0.500%) | 4.008% (1MSORA + 0.650%) | 4.026% (3MSORA + 0.550%) |
Year 2 | 3.926% (3MSORA + 0.450%) | 3.976% (3MSORA + 0.500%) | 3.976% (3MSORA + 0.500%) | 4.008% (1MSORA + 0.650%) | 4.026% (3MSORA + 0.550%) |
Year 3 | 3.926% (3MSORA + 0.450%) | 4.026% (3MSORA + 0.550%) | 4.076% (3MSORA + 0.600%) | 4.008% (1MSORA + 0.650%) | 4.576% (3MSORA + 1.100%) |
Year 4 | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.358% (1MSORA + 1.000%) | 4.576% (3MSORA + 1.100%) |
Thereafter | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.358% (1MSORA + 1.000%) | 4.576% (3MSORA + 1.100%) |
Legal Subsidy | Legal Subsidy: $2,000 | Min Loan $500k Legl Subsidy: $1,800 Min Loan $1m Legal Subsidy: $2,000 | Legal Subsidy: 0.40% x Loan Amount, Capped $1,800 | Cash Rebate >$200k – $1,000 >$500k – $2,000 >$1.5m – $2,500 | Min $500k Loan Legal Subsidy: $2,000 |
Minimum Loan | $800,000 | $1,200,000 | $500,000 | $200,000 | $500,000 |
Remarks | Valuation Sub: $500 Free Conversion after 6month from disbursement 1st Business Day 3M SORA: 3.4932% | Free Conversion after 12months Valuation Subsidy for Refinancing $500k: $350 $1m: $500 1st Business Day 3M SORA: 3.4932% | Free Conversion after LockIn 1st Business Day 3M SORA: 3.4932% | 1 x Free Conversion Anytime Partial Payment up to 30% of Original Loan amount during lock in 50% Waiver of Penalty Due to Sale 1st Business Day 1M SORA: 3.4287% | Free Conversion after 12months 50% Partial Payment of Orig Loan Amount Allowed, During Lock-in Period 1st Business Day 3M SORA: 3.4932% |
| Bank | CIMB | SCB | BOC | HSBC | RHB |
| Lock-in | 2 Years | 2 Years | 2 Years | 2 Years | 2 Years |
| Year 1 | 3.926% (3MSORA + 0.450%) | 3.976% (3MSORA + 0.500%) | 3.976% (3MSORA + 0.500%) | 4.008% (1MSORA + 0.650%) | 4.026% (3MSORA + 0.550%) |
| Year 2 | 3.926% (3MSORA + 0.450%) | 3.976% (3MSORA + 0.500%) | 3.976% (3MSORA + 0.500%) | 4.008% (1MSORA + 0.650%) | 4.026% (3MSORA + 0.550%) |
| Year 3 | 3.926% (3MSORA + 0.450%) | 4.026% (3MSORA + 0.550%) | 4.076% (3MSORA + 0.600%) | 4.008% (1MSORA + 0.650%) | 4.576% (3MSORA + 1.100%) |
| Year 4 | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.358% (1MSORA + 1.000%) | 4.576% (3MSORA + 1.100%) |
| Thereafter | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.476% (3MSORA + 1.000%) | 4.358% (1MSORA + 1.000%) | 4.576% (3MSORA + 1.100%) |
| Legal Subsidy | Legal Subsidy: $2,000 | Min Loan $500k Legl Subsidy: $1,800 Min Loan $1m Legal Subsidy: $2,000 | Legal Subsidy: 0.40% x Loan Amount, Capped $1,800 | Cash Rebate >$200k – $1,000 >$500k – $2,000 >$1.5m – $2,500 | Min $500k Loan Legal Subsidy: $2,000 |
| Minimum Loan | $800,000 | $1,200,000 | $500,000 | $200,000 | $500,000 |
| Remarks | Valuation Sub: $500 1st Business Day 3M SORA: 3.4932% | Free Conversion after 12months 1st Business Day 3M SORA: 3.4932% | Free Conversion after LockIn 1st Business Day 3M SORA: 3.4932% | 1 x Free Conversion Anytime 1st Business Day 1M SORA: 3.4287% | Free Conversion after 12months 1st Business Day 3M SORA: 3.4932% |
Board Rates
Also, this is a library of rates determined internally by the bank. Usually lower at onset, they become increasingly mysterious as time goes by. In fact, if it changes, you only have 30 days to act and react, assuming you could do something about it.
Besides, they are usually described as a combination of internal cost of funds and associated business costs. You may find more description listed in your contract.
For this reason, with board rates, there are no historical trends whatsoever.
The table below shows the board rate loan package.
Compared to other floating loan rates such as FHR or SORA, banks do not disclose their margin for the board rates. However, if you prefer more transparency, FDR and FHR floating rate packages will be better options. Hence, home owners who have spare cash and want to reduce their liability would prefer such a home loan package that offers more flexibility.
Bank | DBS | HLF |
|---|---|---|
Lock-in | 2 Years | 2 Years |
Year 1 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
Year 2 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
Year 3 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
Year 4 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
Thereafter | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
Legal Subsidy | >= $500k – $2,000 >= $1m – $2,500 >= $1.5m = $2,800 | Cash Rebate >$250k – $2,000 |
Minimum Loan | $800,000 | $100,000 |
Remarks | Valuation Sub: $500 Free Conversion after 6month from disbursement | 2 Years Clawback Commitment Fee: 0.02% x Loan Amount (Min $200) |
| Bank | DBS | HLF |
| Lock-in | 2 Years | 2 Years |
| Year 1 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
| Year 2 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
| Year 3 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
| Year 4 | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
| Thereafter | 4.000% (FHR6 + 1.100%) | 4.350% (Board) |
| Legal Subsidy | >= $500k – $2,000 >= $1m – $2,500 >= $1.5m = $2,800 | Cash Rebate >$250k – $2,000 |
| Minimum Loan | $800,000 | $100,000 |
| Remarks | Valuation Sub: $500 Free Conversion after 6month from disbursement | 2 Years Clawback Commitment Fee: 0.02% x Loan Amount (Min $200) |
Fixed deposit pegged rates (18, 36, 48 months)
These are the simplest reference rates to understand, but beware – they are not the easiest to predict. They are basically your fixed deposit rates, but the references are strategically chosen. Then, most banks don’t provide a long and meaningful historical trend of their rates. Instead of the 6-12 months FD rates that are more familiar to our mums and dads, the longer, more obscure, less heard of 18, 36 and 48 months are used. The important takeaway here is that ultimately, they are still determined by their respective institutions.
Other Fine Prints You Should Take Note Of
Evidently, you’ve gotten a hang of the rate types available and you’re ready to make a decision. But wait! Before you do so, there are still a few pointers to take note of.
For this reason, we will cover the fine prints that came with your contract.
But don’t worry, the future is not that bleak (yet), not as long as you read on! Hence, take note of all these pointers and you’re definitely good to go!
Reference Rate
Reference rates can range between a Fixed Rate, floating rates pegged to SORA or the internal Board Rates determined by each financial institution.
Lock-in Periods
Lock-in periods define the amount of time one would have to keep the mortgage with the bank. It usually lasts anytime between 1-3 years; however, there have also been instances of lock-in periods of up to 8 years. Also, if you choose to redeem the loan (either due to full settlement, refinancing or selling the property) before it is due, there is a chance you will chalk up pre-payment penalties.
Pre-payment Penalties
Pre-payment penalties are usually affected during the window of lock-in period. By and large, this penalty ranges from 0.75% to 2% of the loan amount pre-paid.
Interest Reset Dates
Also applicable to floating rate packages. Certain banks may state that you can only redeem the loan on specific dates, such as the reset date of your loan. For example, if you fail to redeem the loan on such dates, you may be subject to a penalty ranging from 0.5% to 2% of the loan amount redeemed.
Cancellation Fees
Should you choose to withdraw before loan disbursement, you may be subjected to cancellation fees. This is applicable between the time you take up the loan offer (i.e., sign on the loan agreement) and the day the loan is disbursed. All in all, cancellation fees can span between 0.5% to 2% of the loan amount cancelled.
Subsidies
When purchasing commercial properties, or refinancing commercial or residential properties, financial institutions may offer subsidies to spur customers on in taking up home loans. In brief, there are a few types of subsidies available and they include valuation fees, legal fees, and free fire insurance premiums.
Reimbursement Clauses
Not only the aforementioned subsidies usually have a minimum period for the customer to hold on the loan, failing which all subsidies would have to be paid back to the bank. Likewise, this is to ensure it is still profitable for the financial institutions.
Pricing Structure
Depending on the bank, there are 3 types of product pricing structures: step-up, step-down, as well as flat. In short, step-up structures are where the loan gets increasingly expensive; step-down structures are where loan gets cheaper.
Conversion Fees
Most banks in Singapore operate home loan packages on a step-up basis, so it is necessary for you to go back to the bank to discuss the terms of the loan. Moreover, the banks may entice you by having conversion fees waivered; however, there are others that will charge you a fee. Consequently, this fee can range from $500 to $5000.
Admin Fees / Processing Charges
Admin fees or processing charges are typically more commonly found in commercial and industrial properties, when obtained under a corporate organization. On the other hand, you may have to fork out anywhere between a few hundred to a few thousand dollars to cover these fees and charges.
What is the difference between Refinancing vs Repricing?
In fact, refinancing and repricing occur after the lock-in period of the existing loan. It often means seeking more advantageous terms for your mortgage. Refinancing is more cumbersome as it entails comparing offers from various banks, further legal conveyancing work and fees, and tussling with mortgage brokers. For refinancing, the new financial institution will need to assess your financial status and do a further valuation of the property.
Repricing is less cumbersome as you simply stick to the current bank but change certain terms of the loan agreement. There are fewer fees involved but one loses the benefit of comparing offers between banks. One also is not required to go through the whole hassle of a credit assessment.
Lastly, in Singapore, one has to be mindful that the limits imposed by the Total Debt Servicing Ratio (TDSR) framework apply at the point of a loan application. Hence, if your TDSR limits have changed subsequent to your 1st loan, any future refinancing or repricing may be affected.
How much you can save by refinancing?
Whether it is refinancing or repricing, the borrower typically saves on interest. Besides, the borrower can make use of the opportunity after each lock-in period to pay down the loan principal and negotiate a lower interest rate based on market forces. Certain banks provide incentives such as legal subsidies when a borrower refinance or reprice his loan.
One can also choose to alter his loan tenure. Furthermore, by altering the loan tenure, one can adopt a longer tenure to lower the monthly instalment or a shorter tenure to settle the loan faster. As our SORA rates are typically highly correlated with US interest rates, homeowners now have the opportunity to refinance or reprice their mortgages and possibly enjoy lower interest rates before the interest rates hike again.
To sum up, it really depends on the interest rate environment. As a result, in a rising interest rate environment, it is usually wiser to review your current mortgage arrangement quickly. Likewise, refinancing in Singapore is no mean feat. Finally, you need to get yourself acquainted with all these boring technical terms. However, we assure you that it is worth every bit of your time. Similarly, imagine going for a few nice holidays for ‘free’ through the money you save on interest repayment. In the same way, we are talking about approximately 5-figures in savings. This is no exaggeration since our home purchase is one of the biggest investments in our lives.
In summary, if you are ready to take the next step, feel free to chat with us.
