refinance home loan

Refinance Home Loan: Singapore homeowner’s ultimate guide (2021)

Loans make it possible for regular citizens to make purchases sooner than they would normally be able to. Cars, education, and starting a business require a larger sum of money. The catch with loans is something we are all familiar with–the interest rate. The larger the loan amount, the higher the interest rate, and the harder it becomes to pay.

The same goes for getting your own private property with the use of home loans. The large amount will cost you large interest rate charges, slowly eating away at your finances. Luckily, there is a way for you to pay lower interest rates–home loan refinancing.

When you refinance your home loan, you can switch to a different mortgage with a lower interest, helping you pay less than you would in your previous loan, resulting in more savings. In this article, we’ll go over how mortgage refinancing works and how you can do it.

 

When Is the Best Time for Homeowner’s to Refinance Their Mortgage?

The COVID-19 pandemic caused major crises, and Singapore itself wasn’t safe from its effects. But among its negative effects, a small silver lining is present for people who are want to switch to a better home loan through mortgage refinancing.

To encourage economic growth, more and more banks are cutting back on interest rates,  encouraging every homeowner to try refinancing their mortgage with home loans with lower interest rates.

As saving money is the primary goal of refinancing your mortgage, the best time to do is it is when the general home loan interest rate is low. It’s important to take advantage of the situation as it can also help alleviate some financial strain on your part.

 

What Is Refinancing, and How Does It Work?

Refinancing a home loan refers to when homeowners replace their current loan with another home loan from a different bank with a lower interest rate. The goal is to make smaller monthly installments or to pay off their mortgage faster.

Typically refinancing your mortgage is done 4 years or more during the tenure of your loan. This is because the usual home loan packages will likely fluctuate and increase after that period of time.

 

The Types of Housing Loans

You can find two main interest rate structures with any sort of loan: a fixed-rate loan and a floating-rate loan.

  1. Fixed-Rate Loan

A loan with a fixed interest rate, meaning it remains the same throughout a certain period. Fixed interest rate loans are safer and are a really good idea when interest rates are very low. In most cases, fixed interest rates only remain during lock-in periods of loans, after which it changes to a floating rate.

  1.  Floating-Rate Loan

A floating-rate home loan is also known as an adjustable-rate mortgage (ARM). Essentially, when a loan has a floating rate, it is subject to fluctuation. A floating rate is usually based on a reference rate pegged to transparent market indicators, like the three-month Sibor rate or the bank’s board rate.

 

Why Should You Refinance a Housing Loan?

There are multiples reasons why refinancing a home loan, or housing loan is a good idea.

  1.  Getting a lower interest rate.

The primary reason why refinancing a mortgage is a better option than retaining the existing loan is the chance to get a lower interest rate to make smaller monthly installments. While extending the loan tenure can also achieve this, you end up paying a significant amount higher total cost than you would with lower interest rates.

 

  1. Getting an FRM (fixed-rate mortgage) to replace an ARM (adjustable-rate mortgage).

An adjustable or floating rate mortgage refers to a housing loan whose interest rates fluctuate depending on the market, unlike a fixed-rate loan which retains the interest rate throughout lock-in periods.

Floating or adjustable rates would then mean that there are risks of your home loan’s interest rate going higher. Refinancing your mortgage presents the opportunity for you to go for home loan packages with a fixed interest rate.

Usually, home loans have a fixed-rate period for a few years, transitioning into a floating rate after a few years. It is best to refinance the loan with one that has fixed interest rates.

 

  1.  Shortening the loan tenure of a mortgage.

As mentioned earlier, the longer the loan tenure, the more interest rate charges accumulate, resulting in a larger total compared to the loan amount.

By refinancing a home loan, you can go for a housing loan package with a shorter loan tenor, effectively letting you pay off the outstanding loan amount faster and saving more money.

 

  1.  Tap into home equity.

Another reason to drop your current loan in favour of a new loan package is to access home equity by refinancing your access home equity to access funds for an emergency expense.

With a new home loan, you can borrow an amount larger than the remaining loan, which gives you extra cash to use elsewhere, along with the bonus of having a lower home loan interest rate.

 

How Much Can You Save From Refinancing?

For a simple explanation of the benefits of home loan refinancing, let’s consider this scenario:

Leo took a home loan to purchase his dream home around two years ago. Currently, he has an outstanding amount of $250,000 with an interest rate of 2.6% with an HDB loan. He still has 15 years remaining on his loan tenure, which means he makes monthly repayments of $1,678.77.

Leo then decides to refinance with a new bank, going for an offer with a 1.5% interest rate, which we’ll assume is fixed with a lock-in period for 4 years.

Numbers:

      • Outstanding loan amount: $250,000
      • Remaining loan tenure: 15 years
      • Existing loan interest rate: 2.6%
      • Refinance loan interest rate: 1.5%

 

Leo will then be able to decrease the rates by 1.1%, incurring monthly payments of $1,507.26. This means he would be able to save $171.51 per month! While this does not seem like much initially, when it accumulates to a year, he will have saved $2058.12, and at the end of the lock-in period, he will have saved a total of $6174.36!

This is only a simplified explanation of what happens when you refinance your home loan. In reality, there are more factors to consider when you refinance, like the aforementioned lock-in periods, the possible fluctuation of interest rates after lock-in periods, valuation fees, legal fees, and more.

It’s important to note that you save a lot of money long-term when you refinance, but you will have to shell out a hefty amount before.

 

Refinance Home Loan

 

Best Refinance Home Loan Options and Their Interest Rates (July 2021)

Now it’s time to look at the many different offers in the market from major banks or otherwise to find out which home loans work best for your situation.

 

HDB Home Loan Packages

A large number of Singaporeans live in HDB flats, and we can surmise that they’ve made purchases with an HDB loan. It’s common practice that HDB homeowners routinely refinance their flats every few years on account of saving money.

If you have an HDB flat and would like to do the same, it’s good to keep track of the latest rates.

 

Best Fixed Rates for  HDB Loan Refinancing

All prices suppose that you get a $500,000 home loan with a tenure of 30 years.

 

Bank Loan 1st Yr Interest Lock-in Period Monthly Payment
CITI Fixed 1.50% 2 years $1,725.60
CITI Fixed 1.60% 3 years $1,749.70
HSBC Fixed 1.20% 3 years $1,654.54
SCB Fixed 1.30% 3 years $1,678.02
HSBC Fixed 1.15% 2 years $1,642.88
UOB 2 Years Fixed-Flexi 1.40% 2 years $1,701.71
SCB 2 Years Fixed (2) 1.45% 2 years $1,713.63
UOB 2 Years Fixed 1.50% 2 years $1,725.60

 

Best Floating Rates for Refinancing

All prices suppose that you get a $500,000 home loan with a tenure of 30 years.

 

Bank Loan 1st Yr Interest Lock-in Period Monthly Payment
DBS SORA 0.93% 2 years $1,592.17
DBS Board 1.00% 2 years $1,608.20
DBS Board 1.00% 5 years $1,608.20
SCB SORA 0.93% 2 years $1,592.17
HSBC SORA 1.12% 2 years $1,635.91
Maybank 3 Month SIBOR 1.29% 1 year $1,675.67
SCB 3 Month SIBOR (2) 1.29% 2 years $1,675.67
HSBC 1 Month SIBOR (1) 1.30% 2 years $1,678.02

 

Home Loan Packages for Private Properties

Unlike HDB flats, private properties, condominiums, and landed properties are less common in Singapore. There are many benefits to having your own, but these properties can cost millions of dollars that many private homeowners opt to get a home loan to cover the purchase.

If you are a private property owner that wishes to refinance, here are some of the most affordable refinancing options in the country.

Best Fixed Rates for Refinancing

All prices suppose that you get a $500,000 home loan with a tenure of 30 years.

 

Bank Loan 1st Yr Interest Lock-in Period Monthly Payment
CITI Fixed 1.50% 2 years $1,725.60
CITI Fixed 1.60% 3 years $1,749.70
HSBC Fixed 1.20% 3 years $1,654.54
SCB Fixed 1.30% 3 years $1,678.02
HSBC Fixed 1.15% 2 years $1,642.88
CIMB 2 Years Fixed Preferred) 1.30% 2 years $1,678.02
CIMB 2 Years Fixed 1.38% 2 years $1,696.96
UOB 2 Years Fixed-Flexi 1.40% 2 years $1,701.71

 

Best Floating Rates for Refinancing

All prices suppose that you get a $500,000 home loan with a tenure of 30 years.

 

Bank Loan 1st Yr Interest Lock-in Period Monthly Payment
DBS SORA 0.93% 2 years $1,592.17
DBS Board 1.00% 2 years $1,608.20
DBS Board 1.00% 5 years $1,608.20
SCB SORA 0.83% 2 years $1,569.45
SCB SORA 0.88% 2 year $1,580.79
Maybank 3 Month SIBOR 1.29% 1 year $1,675.67
SCB 3 Month SIBOR (2) 1.29% 2 years $1,675.67
HSBC 1 Month SIBOR (1) 1.30% 2 years $1,678.02

 

Home Loan Packages for Jumbo-Sized Homes

If you have a large home, you likely purchased it with a jumbo home loan. Naturally, these will cost larger than other properties, but many banks in the country offer special rates for jumbo loans.

Usually, lenders that offer these loans have better interest rates for loans of at least S$1,000,000 to S$2,000,000. If you are looking to refinance your mortgage on this type of home, here are some refinancing loans to check out.

Best Rates for Refinancing

All prices suppose that you get a $2million home loan with a tenure of 30 years.

 

Bank Loan 1st Yr Interest Lock-in Period Monthly Payment
DBS SORA 0.93% 2 years $6,368.68
DBS Board 1.00% 2 years $6,432.79
DBS Board 1.00% 5 years $6,432.79
SCB SORA 0.83% 2 years $6,277.81
SCB SORA 0.88% 2 year $6,323.14

 

How to Refinance an Existing Home Loan

Step 1: Review Your Current Mortgage

So you’ve chosen to refinance your home loan. You’ll naturally have your own reasons for doing so, but it’s a good idea to know all the important information about your existing mortgage.

Before proceeding to the loan application process for refinancing, it’s good to prepare information like the remaining loan balance, monthly installments, loan tenure, fees and charges, interest rates, and early repayment penalties.

 

Step 2: Compare the Different Options to Refinance Your Mortgage

Once you’ve prepared the information, it’s time to choose the financing option that you’ll use to refinance your mortgage. Many banks offer different options to choose from, and you can find some of them listed above, but your options do not have to be limited to those.

Compare the different housing loans and their interest rates to find an ideal replacement, and don’t forget to weigh them against your current home loan to make sure you get the most savings.

 

Step 3: Speak to a Mortgage Specialist

Mortgage specialists are the best people to confer regarding home loans, and it’s the same when you want to refinance. A mortgage specialist will be able to walk you through the application and the different hidden charges you could incur, like a valuation fee and legal fees.

 

Step 4: Find Out if the Bank Offers Subsidies

As mentioned earlier, you still have to factor in a few extra fees and charges when you refinance. To decrease expenses, find out which banks offer subsidies for your mortgage refinancing legal fees and valuation fees. A large loan amount will incur larger fees, which is why a legal subsidy can really help cut down costs.

 

Step 5: Find a Lawyer

You need to approach a lawyer when you refinance your home loan, but it can’t just be any lawyer. The lawyer of choice usually has to be in a lender’s list of preferred mortgage lawyers (called a legal panel), which means if you are going for a DBS Home Loan, the lawyer must be among DBS’s legal panel.

If you don’t have a mortgage lawyer, you can get a list of preferred lawyers from your chosen bank when you decide to refinance.

 

Step 6: Proceed to Loan Application Process

Once you’ve completed the above steps, it’s time to go through the application. With the help of your lawyer (and, hopefully, legal subsidies), you can refinance your mortgage.

Remember to start your application at least 4 months before your current lock-in period ends, so you can avoid the risk of paying for an increased interest rate. You also need to factor in enough time for the application and the 3-month notice you need to give your current bank.

It’s recommended that you proceed to the application even earlier than 4 months so that any possible issues during your application doesn’t affect your finances as much.

 

Things to Note

  1. Repricing vs refinancing: what’s the difference?

Repricing and refinancing are virtually similar in function but differ in one simple thing: when you reprice, you switch to a  new home loan package within the same bank. When you refinance, on the other hand, you are closing your current mortgage and setting up a new account with a different bank.

 

  1. What’s the cost of refinancing?

You will typically encounter two costs when you refinance:

      • Legal fees paid directly to the lawyer/firm
      • Valuation fee paid to your chosen bank

Usually, if your remaining balance is around $300K and above for an HDB flat and around $400K and above for private property, banks will provide a complete legal subsidy, with some even subsidising a percentage of your valuation fee. This makes the total cost minimal and definitely cheaper than repricing.

 

  1. What is the downside of refinancing your mortgage?

The short answer is that it depends. Refinancing is not always the way to go, even when home loan interest rates are really low.  Refinancing a mortgage can be time-consuming, and with closing and opening new accounts, there may be large upfront fees. It will also result in the lender pulling your credit history.

 

  1. When is refinancing a bad idea?

There are a few instances where it’s much better NOT to refinance your home.

  • Consolidating debt. While debt consolidation is good, it’s important to consider that you would essentially be putting your home as collateral. The inability to make payments will cause you to lose your home.
  • Unreasonable fear of ARM. Adjustable rates aren’t as scary as you might think. Adjustable-rate loans can be better than fixed-interest rate loans depending on the situation. Before switching, learn which index affects the rates and calculate before deciding.
  • Going for a loan with a longer-term. A longer-term will give you smaller monthly repayments, but it will only increase the total amount that you’ll pay for.

 

  1. Do you have to put down payment when you refinance a house?

You usually would not need to put down money to refinance your mortgage. In the common rate-and-term refinance, where your interests and payments are lowered and/or your term is shortened, lenders will often look for an 80% loan-to-value ratio (LTV) or lower and solid credit, not a downpayment.

 

  1. How do you choose the best home loan option for refinancing?

One thing you should consider is to work with mortgage specialists. They will be able to review your situation and give you their expert opinion.

It’s important to consider multiple factors before deciding on refinancing. There can be cases where you are better off avoiding it in the meantime. You should also be mindful of the pros and cons of each loan package, as one may be more suitable to your specific situation.

Better yet, use a loan comparison site like Instant Loan. Instant Loan can address your home loan needs by giving you a list of loans from the top licensed moneylenders in Singapore, so you can make a choice that is tailored to your needs. Check out for best home loan Singapore.

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