Refinancing a home loan involves switching your existing mortgage from your current financial institution to a new one. This is distinct from repricing, which is negotiating for a new interest rate package with your existing bank. The primary objective of refinancing is typically to secure more favourable loan terms, such as a lower interest rate.

Reasons to Refinance

Homeowners in Singapore typically refinance for one or more of the following reasons:

  • To Secure Lower Interest Rates: If market rates have fallen since you took your original loan, refinancing can reduce your monthly repayments and total interest paid over the loan's duration.

  • To Switch from a Floating to a Fixed Rate (or vice versa): You may wish to switch to a fixed rate for payment stability or to a floating rate if you anticipate that benchmark rates will fall.

  • To Access Home Equity: A cash-out refinance allows you to borrow against the paid-up value of your property. This is subject to regulatory limits like the Total Debt Servicing Ratio (TDSR) and Loan-to-Value (LTV) ratio.

The Refinancing Process: A Step-by-Step Guide

The refinancing process generally takes two to three months to complete. It is advisable to begin the process approximately four months before your current loan's lock-in period expires to ensure a seamless transition.

Step 1: Review Your Current Loan Agreement

Before exploring other options, check the terms of your existing home loan. Identify two key details:

  • Lock-in Period: Most home loan packages in Singapore have a lock-in period of one to three years. Refinancing before this period expires will incur a penalty, which is typically 1.5% of the outstanding loan amount.

  • Notice Period: You must provide your current bank with formal notice of your intention to redeem the loan in full. This notice period is usually three months.

Step 2: Assess Your Financial Eligibility

Your eligibility for refinancing is assessed by the new bank based on current regulatory requirements and its internal credit policies. The main factors are:

  • Total Debt Servicing Ratio (TDSR): Your total monthly debt obligations (including the proposed new home loan) cannot exceed 55% of your gross monthly income.

  • Loan-to-Value (LTV) Ratio: This is the loan amount as a percentage of the property's value. For a second housing loan, the LTV limit is lower.

  • Credit Score: The new bank will assess your credit report from the Credit Bureau Singapore (CBS) to determine your creditworthiness.

Step 3: Compare Refinancing Packages

Gather information on available home loan packages from various banks. When comparing, look beyond the headline interest rate. Consider:

  • Rate Type: Fixed, floating, or hybrid rates.

  • Lock-in Period: A new lock-in period will apply.

  • Subsidies: Banks often offer legal and valuation fee subsidies to make switching more attractive. Check the terms of these subsidies, as a clawback clause may apply if you redeem the loan within a specified period.

Step 4: Application and Documentation

Once you have selected a bank and a specific loan package, you must submit a formal application. Required documents typically include:

  • Copy of your NRIC (for Singaporeans and PRs) or Passport and Work Pass (for foreigners).

  • Income documents (e.g., latest computerised payslips, IRAS Notice of Assessment, CPF contribution history).

  • Your existing home loan statement showing the outstanding balance.

  • The Option to Purchase (OTP) or Sale and Purchase Agreement for your property.

Step 5: Legal Process and Conveyancing

Refinancing requires legal work to discharge the mortgage from the old bank and register a new one for the new bank. You will need to engage a lawyer from the new bank's approved panel. The lawyer will handle all legal documentation, conduct necessary checks, and coordinate between the two banks and the Central Provident Fund (CPF) Board if CPF funds were used. The bank will also commission a valuation of your property.

Step 6: Loan Disbursement

Upon completion of the legal process, the new bank will disburse the loan. The funds will be used to pay off the outstanding balance of your previous home loan directly. Any remaining amount from a cash-out refinance will be disbursed to you. You will then begin servicing the new home loan with the new bank.

Associated Costs of Refinancing

While banks may offer subsidies, you should be aware of the potential costs involved:

  • Legal Fees: These range from approximately $1,500 to $2,500. A subsidy from the new bank may cover this partially or fully.

  • Valuation Fees: These typically cost between $200 and $500. This is also often subsidised by the new bank.

  • Prepayment Penalty: If you refinance during your lock-in period, a penalty of around 1.5% of the outstanding principal is payable to your current bank.

Refinancing an HDB Concessionary Loan

If you currently have an HDB concessionary loan, you can refinance to a bank loan. The process is similar to refinancing from one bank to another. However, it is important to note one critical rule

  • Once you refinance your HDB loan to a bank loan, you cannot refinance back to an HDB loan for the same property.

This decision is irreversible. Homeowners typically consider this move if bank interest rates are significantly and consistently lower than the HDB concessionary rate, which is pegged at 0.1% above the prevailing CPF Ordinary Account interest rate.