Refinancing Singapore Mortgage Loan

If you are near the end of your lock-in period of your current loan package, it is time to consider changing your loan package. This is because interest rates typically starts to spike with an unfavourable spread after your lock-in period. 

 

People usually start exploring their options ~3 months before the end of the lock-in period, because refinancing typically requires you to serve a 2-month notice to your current bank, and the loan application with the new bank can take ~2 weeks. 

 

Should I Reprice or Refinance my Mortgage Loan?

 

Repricing means converting to a new loan package with your current bank.

 

Refinancing means applying for a new loan package from another bank to replace your current mortgage loan at your current bank.

 

When people come to us near the end of their lock-in, we would advise the best rates and loan packages available in the market. Meantime, some clients may also like to contact their current bank to obtain a quotation for repricing their loan to compare with. 

 

Typically, the loan packages for refinancing are more competitive than repricing packages. We would usually provide a mortgage calculation for both packages for easy comparison, like below. 

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In the example above, the client saves $125/month on interest expense by choosing the refinancing package with the slightly lower interest rates, which translate to a total interest expense saving of $3000 over 24 months. 

 

Costs of Refinancing

 

The fees involved for refinancing your mortgage loan are:

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1. Legal Fees
   Legal fees are typically S$1800 - S$2000 for refinancing, if the law firm is empanelled with both banks. If you are taking an equity loan, it is typically ~$300 more. The refinancing bank would usually provide some option(s) to choose from, we can also provide additional options for comparison. Legal fees can be payable by CPF. 
    

2. Valuation Fees
   For private property, valuation fees range between $400-$600. HDB valuation fees is usually slightly lower. The valuers are appointed by the bank and valuation fees are payable by cash only.
    

3. Penalty from current bank (if any)
   If your loan is not fully disbursed, there is a fee of 1.5% of the undisbursed loan. The most common scenario is when people refinance to another bank after obtaining TOP but not yet obtaining CSC. For example, if the loan quantum is $1M, the undisbursed loan after TOP is 15% of $1M = $150K, the penalty payable would be 1.5% of the $150K which is $2,250. 

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Cash Subsidies from Refinancing Bank

 

The loan package from the refinancing bank usually comes with cash subsidy to offset the legal and valuation fees, typically between $2k - $3k cash depending on the loan quantum. Yes it is possible to make a small profit from refinancing.   

 

However, note that the cash subsidy comes with a clawback clause. For example, a 3-year clawback clause means that you would need to return the cash subsidy given to you if you redeem your loan (e.g. selling your property or refinancing to another bank) within 3 years, even if you are out of lock-in. It is possible to avoid the clawback by repricing within the same bank after lock-in.

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What to Consider when Choosing a Refinancing Loan Package?

 

In order of importance: 

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1. Interest Rate
   Interest rate directly determines the monthly instalment you will be paying, hence it is always the top factor to consider. People typically choose the loan package with lowest interest if they do not need additional flexibility to sell their property during lock-in.
    

2. Fixed or Floating Rate
   Fixed Rate is only available to completed resale properties or BUC properties which have obtained TOP. Building Under Construction (BUC) properties prior to TOP are only eligible for Floating Rates. People tend to pick the Fixed Rate package for more certainty of the mortgage payment, or when interest rates is expected to rise.
   
   As of Feb 2024, we generally advise people to take up Fixed Rate if they are eligible as the difference between Fixed and Floating is still huge at >1%. 
    

3. Lock-In period (or "Commitment Period")
   The typical lock-in periods for Singapore loan package is 2 years. This is the period you need to stay in your loan package to avoid cancellation penalty, which is typically 1.5% of your outstanding loan (1.5% penalty of a $1M loan is $15K).
   
   Some banks may offer a shorter lock-in period (eg 1 year) which gives you the flexibility to sell your property or refinance to another bank without penalty. Some banks may even offer no lock-in loan packages, but typically at much higher interest rates.
   
   Short lock-in loans are suitable for people who like to have the flexibility to refinance/sell their property or wish to extend their loan tenure sooner.
   
   Note that short or no lock-in loan packages may not be available at certain times. 
    

4. Waiver Due to Sale (WDTS)
   Redeeming your loan during lock-in can be expensive. If you like to have the flexibility to sell your property within the next 2 years, you may consider loan packages with full or partial Waiver Due to Sale. This means that the bank would waive the penalty fee of early redemption during lock-in due to sale of property.
   
   Note that WDTS loan packages may not be available at certain times. 
    

5. Free Conversion
   Some banks offer free conversion after x months, which means that you get the flexibility to convert to another loan package within the same bank if a better loan package is available. A shorter than lock-in free conversion clauses are favourable in a decreasing interest rate environment.
   
   Note that shorter than lock-in free conversion clauses may not be available at certain times. 
    

6. Cash Subsidy or other promotional benefits
   Only after all the above 4 factors are considered, then the cash subsidy amount or other promotional benefits could be the deal breaker.
   
   Promotional benefits could include additional cash or vouchers from the bank subjected to sign up of certain accounts or credit cards, or an upgrade to a higher banking tier with the bank.
    

7. Prepayment clauses
   Some loan packages offer free partial prepayment clauses during lock-in. Check with your broker if this matters to you. 
    

8. Thereafter Rates
   After the attractive promotional rates during the lock-in period, your loan would be subjected to the "Thereafter Rates", which is typically much higher.
   
   This factor is less important because you should start to explore repricing or refinancing options ~3 months before the end of your lock-in to avoid moving into the "Thereafter Rates". We would usually provide a free reminder for clients when it is time to do so. 

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Why Refinance with a Mortgage Broker?

1. First of all, it is FREE. This is because we earn our keep with commissions from the bank, and we do not charge a fee to the client. This is a free advisory service for you to enquire the best loan packages available in the market and also to answer any questions you may have regarding your mortgage loan. 
    

2. You may get better loan packages than going to a bank directly. We may also be able to negotiate the loan package for more favourable clauses for you.
    

3. Free reminders to explore refinancing or repricing your loan. Many people get stuck in the unfavourable "Thereafter Rates" because they forget to start the refinancing process in time. We provide free reminders for you to look into refinancing your loan to optimize your notice periods. 
    

4. Potentially faster loan applications. We provide first-cut checks to the supporting documents to ensure your application is complete before submission. This is because missing or incorrect documents could lead to the bank bouncing back your case, leading to unnecessary delays. 
    

5. Free loan advisory, especially for people who may not meet TDSR requirements or people who are looking into decoupling. 

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This article is brought to you by HF from Loan Experts in 2024. More questions? Reach out to us by Whatsapp, let us know your current bank and loan quantum to explore your options. 

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