Home Loans

When to Refinance Your Housing Loan in Singapore

5857606040_2b3a92ea57_z

Timothy Kua

0 Comments

0
Shares

For many Singaporeans, our home loan takes up the lion’s share of our budget. As this usually goes on for 25 to 35 years, it makes sense to periodically review our home loan package. In particular, we need to look for home loan refinancing opportunities, which can lower monthly repayments and raise capital gains on resale. In this article, we will examine the best times to consider refinancing:

 

What is Refinancing?

Refinancing means ending your existing home loan package, and carrying on repayments with another bank’s package. For example:

Say I have a 1.95% SIBOR package, from Bank X. I have been paying this for several years. But now, I notice that Bank Y has a 1.32% SIBOR rate. I can choose to refinance from Bank X to Bank Y, thus obtaining a lower interest rate.

Refinancing is common practice in Singapore’s property industry. This is because home loan packages change all the time, and borrowers must be on the lookout for better rates. Also, there are no loyalty rewards for staying with the same bank.

 

Refinancing Vs. Repricing

 

signing documents
Read the fine print and check for free repricing options. It might save you money later.

 

Repricing looks similar to refinancing, but borrowers should not confuse the two.

Repricing is the process of switching between home loan packages within the same bank. To continue from the earlier example:

I have a 1.95% SIBOR package from Bank X. After paying this for several years, Bank X launches a new home loan package, offering a 1.6% SIBOR rate. If I were to move from my old package into this new one, I would be repricing, not refinancing.

It is important to note the difference, because some banks offer one “free” repricings (often called “free conversion”. In these cases, the bank will allow you to move between its loan packages without incurring any costs (which is typically an “admin fee” of about $500).

Do not assume that repricing (even for the first time) will be free. Be sure to verify the details with your bank.

As a general rule, you should refinance to a different bank so long as you satisfy all of these 3 conditions:

1) You are out of your bank’s lock-in period if any (more below)
2) You are out of your bank’s clawback period (more below)
3) There are other banks offering better interest rates than your current bank

 

How Much Does Refinancing Cost?

 

Chains
Most refinancing costs come from penalty clauses. Check for lock-ins before accepting a package.

 

Depending on your circumstances, you may have to pay a cost for refinancing. These come from clawback and lock-in.

Clawback

Before the MAS rulings in October 2012, banks used to pay certain subsidies for borrowers. This included fees like legal costs, valuation, and fire insurance, which could total around $2,000 to $3,000.

For these subsidies, the banks retained typically a three-year right of clawback. If you have one of these packages, and you refinance within three years of your loan approval, you must pay back the subsidies.

After October 2012, banks are no longer allowed to pay these subsidies. So when you refinance, you will have to pay any legal fees, fire insurance, etc. to the new bank yourself. As before, the costs are around $2,000 – $3,000. You can use your CPF to pay these costs.

Important to Note:
If you break the three year clawback and refinance to a new bank, you will have to pay the clawback fees to the old banks plus any legal fees, fire insurance, etc. to the new bank. That could come to around $4,000 – $6,000 total depending on your property type. So avoid “double paying” by refinancing after your clawback period is over!

 

Stop sign
Try not to break the lock-in. You will almost never recover the cost from the new package.

 

Lock-In

Some loan packages come with a lock-in clause.

A lock-in usually lasts for two to five years. Should you refinance within this time, you will have to pay a penalty (often 1.5% of the remaining loan amount). In general, it is not advisable to break a lock-in, as the sum involved is substantial.

The reason banks impose this penalty is because refinancing deprives them from further making money from you through the interest payable. The penalty acts as a form of insurance to the banks.

If you are uncertain of such details, follow us on Facebook. Our articles will keep you updated.

 

When Should We Refinance?

The best times to refinance are:

  • A Better Package is on Offer
  • You Need to Change Loan Tenure
  • Savings Meet or Exceed Costs Within the Year

 

1. A Better Package is On Offer

The home loans market is dynamic, with banks changing their offers every month. While your loan package may have been the best some years ago, it is unlikely to stay that way.

The typical home loan package has “teaser rates” for the first two to three years, during which interest rates are kept low. From the third or fourth year onward, there is usually a significant rate hike. This is when most borrowers are advised (even by the bankers themselves) to consider refinancing.

Remember, the less interest you pay, the lower your monthly repayments become. Also, paying less interest means higher gains should you eventually sell the house.

But How Do I Know if a Better Package is Out There?

The best way is to compare all the available loan packages. You can do this very quickly, and for free, on sites like MoneySmart. With over 12 banks offering home loans, it’s unlikely that you won’t find a better deal at some point.

When choosing a new package to refinance into, you’re looking for something that’s significantly cheaper. There should be a difference of at least 0.8% between your existing interest rate and the new one. Otherwise, it might not be worth your time. If your remaining loan amount is high (say over $1 million), a difference of even 0.5% might also mean significant savings.

 

2. You Need to Change Loan Tenure

 

Stopwatches
You can alter the duration of your loan to decrease monthly repayments.

 

For some borrowers, the problem is not the overall cost of the loan, but the amount of their monthly repayments. Refinancing can help in these cases too.

When you refinance a loan, you can change the loan tenure; so long as the total tenure does not exceed 35 years (if you want to know why and how loan tenures are calculated, see here).

For example: Say you pick a loan package with a tenure of 25 years.

Five years later, your circumstances have changed, and the monthly repayments are too high. You can now refinance into a new package, with a loan tenure of 30 years instead. While stretching the loan by five years will increase the overall cost (due to interest), it will decrease the monthly repayments; easing your monthly cashflow.

 

3. Savings Meet or Exceed Costs Within the Year

 

100 dollar singapore
In the long run, staying with the same package might cost more than refinancing.

 

Let’s say to refinance you have to pay back penalties, or are going to pay for new legal fees, etc.

The first step is to calculate your new monthly repayments. Now, compared to your existing repayments, how much will you save with the new loan package? The total amount saved should meet or exceed the cost of refinancing, within a recommended period of 12 months. For example, if refinancing will save you about $200/mth with the new loan but cost an additional $3000 (upfront) in legal fees, it will technically take you $3000 divided by $200 = 15 months to breakeven before real savings kick in. Is it worth the wait?

Calculating interest savings can be a difficult, since interest rates change almost daily. Also, you will need to understand how the monthly repayments are derived. Rather than write a maths textbook here, we advise you to consult an expert. Loan comparison sites like MoneySmart have a mortgage specialist on hand, who can figure it out for free.

 

Image Credits:
taxbrackets.org (via Images_of_Money), nerdcoregirl, t r e v y, thecrazyfilmgirl, Moyan_Brenn, Milo Riano

What are your worries when refinancing? Comment and tell us about it!

Keep updated with all the news!

Tags: ,

Timothy Kua

I'm co-founder of MoneySmart.sg. I'm a business and technology enthusiast wanna-be. I also love money. In fact, I love money a little too much. Some say money is the root of all evil, but I say, it's the root of all wealth!

  • marsha

    Do you need personal loan? Does your firm,company or industry need financial assistance? Do you need finance to start your business? Do you need finance to expand your business? We give out loan to interested inviduals who are seeking loan with good faith. Are you seriously in need of an urgent loan contac us at Email: honestloan10@gmail.com
    APPLICATION DETAILS
    Your Full Details:
    Full Name:
    Loan Amount Need:
    Loan Duration:
    Phone Number:
    Applied before?
    State:
    Monthly Income:
    Country:
    You are to send this to our Company Email Address: honestloan10@gmail.com

  • marsha

    Are You In Need Of A Private Or Business Loans At 2% Rate For Various Purposes? If Yes; Contact us with this details below take note we give out from $20,000.00USD to 10million USD
    Full Name:
    Amount Needed:
    Duration:
    Country
    Cell No:
    Sex:
    contact us via email honestloan10@gmail.com
    Best Regards
    Mr.Marsha Goodman

  • marsha

    I am a private loan lender which have all take to be a genuine lender i give out the best loan to my client at a very convenient rate.The interest rate of this loan is 3%.i give out loan to public and private individuals.the maximum amount i give out in this loan is $1,000,000.00 USD why the minimum amount i give out is 5000.for more information contact us email honestloan10@gmail.com
    Your Full Details:
    Full Name :………
    Country :………….
    state:………….
    Sex :………….
    Address…………
    Tel :………….
    Occupation :……..
    Amount Required :…………
    Purpose of the Loan :……..
    Loan Duration :…………
    Phone Number :………
    Contact email:honestloan10@gmail.com

  • Mr Kanke Mohamend

    We offer financial service of any reason,finance to start business,paying of bills all kind of financial assistance unsecured loans to honest and reliable individuals and companies globally at 3% interest rate. Here is the solution to your financial problem, contact us today via email: ds.kanke@gmail.com

  • Mr Kanke Mohamend

    Are you looking for Finance?
    Are you looking for Money to enlarge your business?
    I think you have come to the right place.
    We offer Cash at low interest rate.
    Interested people should please contact us on
    For immediate response to your application, Kindly
    reply to this emails below only. diskanke@hotmail.com

    Mr Mohamend Kanke
    ds.kanke@gmail.com

  • jane

    Be careful here. Nobody can help you here or even suggest how you can get financial help. Any answer of a loan lender to your question, you MUST ignore,because they are SCAMS…real SCAMS…i was a victim of which i was ripped thousands of dollars…well thank God for a Christian sister who referred me to a loan organization formed by some Christian Women Trust Fund. it is called Christian women Trust-funds Cooperative Organization (C.W.T.C.O) christainwomen.trustloanfirm@gmail.com They made my life a valuable one and gave it a meaning. When the sister gave me their contact, I contacted them. Then I requested for a loan with all the necessary evidence to prove that I actually needed a loan, they approved a loan of $250,000.00 USD in 48 hours after meeting up to their necessary requirements, my loan was deposited in my bank account without collateral. Though i was very nervous with the loan organization at first due to my previous bad experiences, especially when the issue of me settling the Registration charges came up, I hold on to my faith due to the fact that my relative referred me, got it cleared,and as God should have it, little did I know that my financial shortcomings has come to a final end. If not for that quick referral from a christian sister to this genuine source ,I would have regretted my total life,because at that point in time i just divorced the father of my son, and my son (Kennett) was faced with a life and death situation. I was faced with his hospital bills and i was also faced with foreclosure at my apartment. Details of this GOD-SENT organization won’t be disclose for now for fear of impersonation ( because it has been discovered that some persons are not really in need of financial help, but they just want to collect money from this genuine christian loan organization). And it is because of this reason they don,t give out loan anyhow. You must be able to convince them very well, and provide good proofs to show that you really need a loan before they can approve it for you. Their charge is very affordable and reliable compare to many out there,their interest rates is just 4%, from 1-10years repayment little documentation,and little credit check. As i have earlier said, for security reasons i can only provide their email address. Embrace this new initiative.Feel free to contact them via Email(christainwomen.trustloanfirm@gmail.com) as their loan officer/rep sir perry smith will attend to you and you will be free from scams and financial burdens.

  • APPLY FOR A LOAN

    PERSONAL LOANS NO CREDIT CHECK.
    When your financial situation gets out of hand and when friends and family not in a position to help you out, you turn to banks. When your not so fabulous credit report fail to give you a helping hand, Get the cash you need today! Unexpected expenses can arise at just about any time. This is when a personal loan can come in handy. Often times you can apply for no credit check personal loans online. Unlike some companies we work with hundreds of lenders to match you up with the loan that meets your needs. We have the ability to offer no credit check loans contact us today via email: ( apply98@outlook.in )