Switching your HDB loan to a regular home loan or bank loan is a common way of refinancing your HDB in Singapore. But understanding your outstanding loan commitments and when is the right time to refinance is absolutely essential to transitioning from HDB loans to a bank loan in a smooth and hassle free manner.
HDB loans offer homeowners in Singapore several amazing benefits, including the ability to borrow up to 80% of the value of your HDB property. That said, there comes a time when switching to a bank loan can allow you to access significant interest savings by leaving your existing home loan behind in favour of a bank loan with a lower interest rate and better all-round terms.
In this article, Instant Loan explores how this process works and what you can expect when refinancing your HDB in Singapore.
How to Refinance Your HDB Loan into a Bank Loan
Refinancing is a step-by-step process that requires a lot of thought. Here’s how you should approach a HDB home loan refinancing:
Step 1: Compare Home Loans and Mortgage Deals
Using a comparison site like Instant Loan to compare different home loans across the market can help you to identify which banks are offering the best deals. Be sure to look out for deals with a lower interest rate, sign-up perks and flexible outstanding loan amount and tenure options.
Step 2: Prepare Your Home Loan Documents
Once you’ve identified your ideal home loan, you’re going to need to carefully prepare the following documents as early as you can:
- Your passport and/or NRIC details
- Your HDB flat details and financial information documents
- Your last three months’ payslips and employment contracts
- Tenancy agreements and stamp certificates
- Your CPF withdrawal statement and transaction history:
- An outstanding loan amount statement
Many of the above documents pertaining to your existing HDB home loan can be obtained from your MyHDBPage.
Step 3: Submit Your Application and Wait for Your Valuation Assessment
After preparing and submitting your documents alongside your home loan application, your bank will appoint a qualified surveyor to assess the market value of your property. Age, size, land, construction, property type and other factors can all impact the bank’s valuation.
Step 4: Appoint a Law Firm and Pay Legal Fees
Next up, you’ll need to get a law firm involved to handle the conveyancing paperwork required to refinance your HDB home loan. Unless the bank has thrown some generous subsidies your way, you can expect to pay around $2,000 in legal fees.
Step 5: Adjust the Loan Amount You’ll Need to Pay
Last but not least, depending on your situation you might need to adjust the loan amount you are paying using your CPF savings. This is something that the legal firm you’ve appointed can usually help you with.
At What Point Can I Refinance My HDB Loan into a Bank Loan?
Refinancing your HDB loans into bank loans should only be pursued in certain circumstances and situations. Whether you’re refinancing with an existing bank or a new bank, you’ll need to consider these following factors first to determine whether you’re eligible:
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Your Mortgage Servicing Ratio (MSR)
Mortgage Servicing Ratio or “MSR” is what banks call the chunk of your income that you use monthly to repay any mortgages or home loans – which cannot exceed 30%. This limit accounts for both your existing home loan and the new home loan you are applying for.
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Your Total Debt Servicing Ratio (TDSR)
Another jargon-heavy acronym you’ll need to think about is your Total Debt Servicing Ratio or “TDSR”. This is the name banks give to the chunk of your salary that goes toward all of your loan, financing, and debt obligations combined each month. The maximum TDSR you can have in Singapore currently sits at 55% of your gross earnings.
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The Loan to Value (LTV) You Can Access
Banks in Singapore typically grant a maximum loan to value – i.e., the amount of a property’s value you can borrow in the form of a loan – of 75%. This means that when refinancing, you’ll need to have repaid at least 25% of the initial market value of your property, or else you might need to top up the difference using cash or your CPF.
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Whether or Not You Are Eligible
Banks will require you to pass certain eligibility checks before granting you a loan or enabling you to refinance with them. You’ll need to consider:
- The bank’s minimum income requirements and other criteria
- Whether you’re buying the property alone or as a joint purchase
- Affordability checks regarding your LTV, TDSR and MSR
Why Refinance?
By this point you might be getting the impression that refinancing a home loan is hard work. So, why do Singaporeans choose to refinance? Well, there are numerous reasons homeowners might consider refinancing, such as:
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Securing a Better Bank Loan Interest Rate
Having a HDB home loan has some pretty convenient interest rate benefits. HDB home loan interest rates are usually super-stable, currently clocking in at around 2.6%.
But once you start shopping around, you’ll soon notice that many banks actually offer a much lower interest rate than this by quite some margin. Hence, refinancing is a great way to enjoy significant interest savings.
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Taking Advantage of Bank Loan Incentives
Banks frequently advertise promotions to new home loan customers – and these perks and cash rewards often make it more than worth your while to go through the switching process.
Generous subsidies can help you to offset legal fees, valuation fees and more. These rewards, plus a favorable interest rate, can make refinancing seem like a very attractive proposition. With legal fees commonly costing hundreds of dollars and valuation fees often priced in the thousands, legal and valuation fees savings are seriously important when refinancing in Singapore.
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Enjoying Peace of Mind with a Stable Lock in Period
A HDB home loan does not usually have a lock in period, and some borrowers enjoy the flexibility this affords you. That said, tying yourself to a lock in period can be a positive thing if this means you can obtain guaranteed great rates and secure them over a long period.
Some banks advertise some amazing fixed home loan packages with a lower interest rate than a HDB loan, which can offer long-term peace of mind, financially speaking – and sometimes even reduce your overall cost burden, helping you to save significantly.
How Long Can I Expect the Home Loan Refinancing Process to Take?
At a glance, refinancing a home loan looks pretty long-winded and complex – but the entire process is actually usually completed much more quickly than you might think.
Depending on your circumstances, you can generally expect the switchover to take around 60-75 days if no significant complications are encountered. You might even be able to complete your refinancing even quicker if you’re able to obtain the assistance of a reputable law firm and begin the refinancing process early.
FAQs
1. What Happens to My Previous Mortgage When I Refinance with a New Loan?
Refinancing effectively sees your old home loan “redeemed” with your new bank, meaning in theory that the bank will pay off your HDB home loan for you. Simply put, from this point onwards, you won’t be in debt to HDB anymore – you’ll be in debt to your new bank, instead.
2. Can I Shorten the Period of My HDB Loan?
Usually, yes – most banks will allow you to shorten your HDB loan period by five years or more. This can help you to enjoy interest savings and ultimately pay off your loan more quickly if you can afford the monthly repayments.
3. What Kind of HDB Refinancing Promos Do Banks Offer?
The most common types of promotions include subsidies and cash rewards that can be used to offset legal fees and valuation fees as part of the refinancing process. Most banks advertise new special offers on a monthly basis, which are regularly rotated.
4. How Long Does Home Loan Refinancing Usually Take?
This can depend on several factors, including how early you decide to begin the process and how efficient your lawyers are. Generally, it should take around 60-75 days on average.
Refinancing a HDB Loan into a Bank Loan: What to Remember
While refinancing a home loan might appear daunting from the outset, being able to secure a better-value loan deal than your outstanding loan is a great way to save money, and offers a ton of other benefits, too. But before refinancing, don’t forget that:
- Home loan refinancing is worth the effort if you want to save money.
- Home loan helps you save on interest rates, enjoy subsidies and cash rewards and generally reduce your month-to-month mortgage costs.
- Unless your circumstances render you unable to do so, it’s most ideal to begin the refinancing process early to ensure a smooth and hassle free process.
- Comparing the market to identify the best-value bank loans is the best way to find the right home loan to suit your unique circumstances.
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