5 questions to ask before making a home loan refinance decision

Woman looking at her home loan bills and deciding to refinance

5 questions to ask before making a home loan refinance decision

If the lock-in period of your mortgage loan has an end in very close sight, it might be very tempting to refinance your home loan in Singapore. Not to mention, bank loans nowadays are coming in tagged with low-interest rates and attractive benefits. 

Refinancing allows you to switch your current bank loan out for another one with a different bank. You can also ask your current bank for what they’re able to offer you, which is called repricing.

When it comes to refinancing, there are a few key factors you’ll want to consider: 1) are you better off sticking with your current plan, or 2) would you be better off converting to a different package with the same bank? 

Perhaps you might want to take up a refinanced package with a different bank instead. 

Don’t worry if you don’t know the answers to those questions. Before deciding to refinance your home loan, here are 5 questions to ask.

1. What’s the difference between repricing and refinancing a home loan in Singapore? 

When you refinance a loan, it means you’re taking a loan with a different bank to continue paying off the loan that you have. Most people do this to save money on their home loan by taking advantage of lower interest rates. 

When the lock-in period of your existing loan ends, you’ll be subject to “floating” interest rates in the market. These rates are subject to global economic changes, and you might want to switch to a bank loan with a lower interest rate. 

As opposed to refinancing, repricing is when you look within the same bank to switch to a more competitive home loan in Singapore. 

While refinancing is great for the same benefit of reduced interest rates, it’s especially beneficial in certain situations. For example, if you were to change jobs, switching to a different bank (refinancing) would mean a new background assessment, new payslip submissions, and a new property valuation. This new assessment will allow you to cash out from the property as property price increases, and explore increasing loan tenor to improve cash flow. With a stronger income, you can borrow a higher loan amount. 

Repricing and sticking to the same bank means less paperwork. You might be saving yourself the hassle of a credit assessment, legal fees, valuation fees, and any lock-in penalty fees that you might be liable for. In this case, repricing might be a more convenient solution. Do note that an administrative fee is applicable if you’re repricing.

This makes it all the more important to weigh all your considerations before deciding to refinance or reprice your mortgage loan in Singapore.

2. What’s the outlook on interest rates for home loan refinance?

Image of a percentage and home symbol on a see-saw, illustrating the concept of weight home loan interest rates during a home loan refinance

By yourself or with a mortgage broker, assess the financial market to see if interest rates are headed north. 

If they are, it most definitely makes sense for you to refinance your bank loan with more favourable rates. 

But with that said, you might also want to keep an eye on the market for interest rates that are falling. Wait for the right time to refinance your loan, as it could guarantee you a low fixed rate. 

As you evaluate the home financing solutions available to you, refinance your home loan if you can truly take advantage of both fixed rates and floating rates in the market. 

Just don’t make too hasty of a decision. Remember that you’ll be bound by a new lock-in period! 

Speaking of lock-in periods…

3. What’s the lock-in period? And are there charges for home loan refinancing? 

Lock-in periods are the time when you’ll have to keep your home loan package with the same bank. Typically, lock-in periods last between 1 to 3 years. 

If you were to withdraw your loan prematurely, you’d end up having to pay extra charges and penalties. If you want to refinance your home loan within your lock-in period, consider whether the interest savings outweigh the penalty costs. 

Withdrawing your bank loan prematurely could result in the following costs:

PenaltyAmount to Pay
Prepayment Penalties0.75% to 2% of loan amount redeemed (typically at 1.5% for completed properties)
Cancellation Fees0.5% to 2% of loan amount cancelled (typically at 1.5% for completed properties)

There will also be clawback of subsidies offered to you by the current lender if you’re still within the reimbursement period.

However, you may be entitled to subsidies by some banks when you refinance your home loan in Singapore. When you’re looking for home financing solutions, these subsidies might defray the costs of legal fees, valuation fees and offer free fire insurance premiums!

4. Is your home loan an HDB loan? So how do you refinance the HDB home loan?

Have you taken your home loan in Singapore with HDB instead of a bank? You’ve likely done so because of the security and stability as HDB loans interest rates have not changed for years.

However, it does come with a catch. If you’re looking to tap on the attractive benefits of low-interest rates in the market, you might want to refinance your home loan. But doing so means that you cannot refinance your loan back to HDB after that.

Once your HDB loan has been refinanced to another provider, it also means that it has been refinanced out of HDB

You’ll no longer be welcome to enjoy the stable rates of an HDB loan again. So if you’re looking to refinance your home loan out of HDB, make sure you’re confident you can settle your mortgage loan in Singapore with a bank loan. 

In recent times, bank loans have charged as little as 1.30% in interest (at the time of this article). Essentially, that could mean savings ranging from a few hundred to a few thousand every month. 

Compared to 2019, refinancing a home loan during late 2020 could have translated into a substantial S$7,000 savings a year. 

5. Are there changes to your financial situation? How does that affect your home loan refinance options?

 Image of a jar filled with cash notes to symbolise considering your financial situation when making a home loan refinance decision

In recent times, COVID-19 and cryptocurrency have both had a lot of airtime. And so, we’ve observed more than ever how quickly the world’s economic state can fluctuate. This includes the income and financial situation of everyone.

If it has been more than 2 years since you took your mortgage loan in Singapore, your financial situation has likely changed a little bit. Depending on how it has changed, you might be looking to increase or decrease your loan tenure. 

READ: Should I opt for a longer or short loan tenure?

If you were to shorten your tenure, it means you’ll get to clear your loan off faster, perhaps even with lower interest rates.

If you lengthen your tenure instead, you’ll get to ease some of the strain on your cash flow with reduced monthly instalments. However, it might mean an overall increase in the amount that you pay. 

To help you assess how you should refinance your home loan, you can measure your Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR). This is especially important if your pay amount has changed or if your income levels tend to vary. 

Learn more about TDSR and MSR here.

Read what happens when you fail TDSR here.

How will you be making your home loan refinance decision?

You might have a handle on whether you want to refinance your home loan. 

It’s a move that could potentially save you a lot of money, month-to-month and year-to-year. 

Before you make a decision, make sure you’re well aware of the fine print in any and every mortgage loan that you’re considering. With that said, you can save yourself some of the legwork with FinanceGuru’s mortgage experts. 

free home loan advice from singapore mortgage broker

We’ll take you through the best bank loans available to save you time that you might otherwise spend getting through numerous banks’ websites. 

Apart from guiding you on what you could do next, we’ll also crunch the numbers for you and work out all the costs involved with every option. And if you decide to not refinance your loan, after all, don’t sweat it! Our free no-obligation assessment will help you weigh your options transparently.

Contact us now to find the best home loans in Singapore and make an informed home loan refinance decision that fits your lifestyle. 

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