When Should You Refinance Your Home Loan In Singapore?

Mortgages are a popular way of securing a home in Singapore as it’s not possible for every citizen to purchase one from their own savings.

This type of home financing spans for several years, over which market interest rates keep on changing from low to high and vice versa.

But what does refinancing a mortgage home loan mean?

When you refinance a mortgage loan, it simply implies that you are moving from your mortgage from your current bank to another. But if your current bank agrees to a better interest rate, that is called mortgage repricing, not refinancing.

The benefit that you derive from the refinance is that you can take advantage of lower interest rates.

Hence, you will end up saving money on interest by the end of the loan tenure. Some customers will also refinance at a higher loan amount to get the extra cash (cash-out refinancing) for other uses.

Now that you know what home loan refinancing means in Singapore, at what point in time is it necessary for you to do so? What are the prerequisites for successful home refinancing?

When You Should Refinance Your Home Loan

In Singapore, home loan refinance is usually possible after the fourth year after you acquired your mortgage.

The reason for this is that typical home packages increase interest rates after three years. Therefore, negotiating with other banks from the fourth year to take over the balance at a lower interest rate is a wise move.

Refinancing your home loan can be an expensive affair as it involves incurring valuation and legal fees.

However, suppose you have a HDB loan refinance of $300,000 and above, or private property of $400,000 and above. In that case, the refinancing bank will provide a partial subsidy on valuation fees and full subsidy on legal fees.

Another important factor to consider when looking for a home loan refinance is your lock-in period. You need to know when it ends in order to refinance your home loan at the right time.

Banks also require you to issue a three-month notice before you switch banks. Seeking refinancing within the lock-in period is not prohibited, but you will be required to pay penalty fees.

Extending The Home Loan Term

But what if a change of interest rate is marginal when moving between banks, but you you’re your repayments to be more manageable?

In this case, you can apply for refinancing in your current bank to extend your loan period. This will help improve your cashflow as it means you pay less every month.

Whether you are requesting private property or HDB refinancing, both can be extended for a maximum of 35 years, if you manage to reach the age of 75.

However, a loan term extension is only possible if your current home loan tenure is not maxed out. The number of years you’ve served your current loan will also be deducted from your extended maximum loan tenure.

3 Benefits of Refinancing Your Home Loan

Homeowners in Singapore seek home loan refinancing for three major reasons:

1.  Lower Monthly Payments

When refinancing a mortgage loan, your main objective is to find a bank that will offer the lowest interest rate possible.

Since the interest amount is factored in your monthly installments, a lower interest rate automatically translates to a lower monthly payment even without a change of tenure.

Hence as soon as your four-year refinancing window opens, you should have gotten a new bank to refinance your existing home loan.

If you don’t do so, and decide to stay with your current bank, your loan will then end up demanding higher monthly installments until your next lock-in period ends.

2.  Lower Interest Rates

The second benefit of refinancing your home loan is you get to secure a better interest rate. By a better rate, we mean being able to move from either a fixed rate to a floating rate, or vice versa.

A fixed interest rate is stable and locks your loan for a longer period of time. However, it may be higher than the current floating rate package, which means a switch could be good for you.

On the other hand, with a floating rate package, the rates change depending on whether your rate is pegged to your bank’s fixed deposit interest rates.

Since a floating rate package doesn’t necessarily have a lock-in period, you can always switch to a fixed rate package.  The new fixed rate will enable you to plan and manage your future finances well.

3.  Cash-Out Refinancing

You can use your private property as collateral to secure a home equity loan. Typically, your lender will finance up to 75% of the value of your property.

The cash amount you take will be the sum of the home loan and any CPF used for the same property. You can use the cash balance to pay off other debts or for business purposes.

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Where Can You Apply For Home Loan Refinancing?

During this period, when interest rates are fluctuating, home loan packages are changing quite quickly. This means that no single bank will always provide the best deal.

Only banks and certain financial entities are permitted to refinance private properties in Singapore.

Private property cannot be refinanced using an HDB concessionary loan. In the event that you need to refinance your mortgage, you can switch banks.

Conclusion

Refinancing is the key to saving money when it comes to a housing loan.

You may be paying more than necessary on your home loan if the interest rate is higher than 2.4%. In this case, you should definitely consider refinancing.

One of the most important justifications for refinancing is to obtain a mortgage with a cheaper interest rate.

You should consider refinancing when interest rates fall so you can shorten the length of your mortgage and pay less in interest payments.

The process involves lawyers and legal fees, during which you negotiate a subsidy from the bank offering the best refinance home loans. This may sound like a troublesome process, but the outcome is worth it.

You should refinance your housing loan every two to three years to make sure you are not paying more than necessary for your mortgage.

This is because the interest rates on most home loan packages will increase in the following lock-in period.

If you need help with regard to your property and home loans, speak to the experienced loan advisors at Credit Thirty3, who will be more than happy to assist you.