In Singapore, one of the most expensive things we own is probably our property (unless we’re rich enough to also own a yacht, a million-dollar sports car or a gigantic diamond ring – if this is you, let’s be friends). This also means that very often, our biggest source of debt is our home loan, or mortgage.
A mortgage tends to be a long-term financial commitment. We’re looking at a good 20 to 30 years of recurring monthly instalments that range from the hundreds to thousands. If there’s not enough in your CPF Ordinary Account to support these payments, that means there’ll be some cash outlay which could really eat into our savings.
The solution? Some try to cut down their spending by forgoing ‘atas’ meals or a holiday overseas. However, there’s a better way to reduce your mortgage instalments without tightening your belt – refinance your home loan to one that offers a lower interest rate!
The truth is, not a lot of homeowners know about the benefits refinancing can bring. In PropertyGuru’s Singapore Consumer Sentiment Study H1 2021, we found that more education around home loan financing is needed to bridge knowledge gaps.
Half of the Singaporeans surveyed said that their unfamiliarity with the required paperwork was a hurdle when securing a home loan. Other concerns revolved around the inability to afford a downpayment and job/income stability.
In addition, 39% of Singaporeans surveyed were not aware that refinancing their home loan was even an option. About 47% of this group were millennials, and one-third were middle-aged and older Singaporeans.
For those who didn’t refinance their home loan, this inertia came from varying reasons, such as finding it unwise to refinance their mortgage during their lock-in period, perceptions that a lot of effort was required, and needing to cough up thousands of dollars upfront when refinancing.
In this article, we’ll go through these reasons and clear up any misconceptions about refinancing so you can save more money in 2022!
What is Refinancing?
Before we dive in, let’s do a quick recap on what refinancing is. Refinancing is when you replace your existing home loan package with that of another bank (or an HDB loan with one from a bank). To avoid any penalty fees and/or subsidy clawbacks, this is usually done after the lock-in period of your current home loan ends.
Refinancing is different from repricing. The latter involves staying with your current bank but signing a different loan arrangement. Still, the end goal for both is the same: to get a more competitive home loan and save money.
Related article: Refinancing your HDB Loan: How Much Can You Save?
When you refinance your home loan, there’ll be some costs involved, of course. These include legal and valuation fees (about $2,000 to $3,000), administrative fees and so on, depending on the bank. For these upfront costs, the bank could offer some form of subsidy or cashback.
What are the Benefits of Refinancing?
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What you can do when refinancing |
How refinancing can benefit you |
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Switching to a loan with more competitive interest rates |
For instance, if you’re paying 2.6% per annum (p.a.) interest for an HDB loan and you refinance to a home loan package with a bank that offers 1.5% p.a., the reduced interest rates will likely translate into a significant amount of cash saved, based on your total loan amount and tenure left. |
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Changing your loan type |
Changing your existing home loan into another type (e.g. from fixed to floating rates or vice versa) to take advantage of |
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Adjusting your loan tenure |
Your financial needs change throughout your life. By making your loan tenure longer, you can make smaller repayment amounts that could be easier to manage (but you might pay more over time in interest) or make it shorter to pay off your mortgage quicker, become debt-free and incur less overall interest. |
Related article: SIBOR vs SOR vs SORA: What Do These Rates Mean for Your Home Loans?
Now, let’s take a closer look at the pain points homeowners have when refinancing their home loans and what prevents them from doing so. We’ll also suggest some solutions to these hurdles.
1. Comparing Interest Rates and Scouring for Deals Is Labour-intensive and Time-consuming
The first thing anyone would do when looking for a home loan package is to compare the rates across all the banks. This might also include poring through the terms and conditions, looking for hidden costs and so on. You’ll have to trawl through various websites to get the required information, sometimes even without knowing where to look and how to begin.
If you’re unfamiliar with the refinancing procedure, the process may seem opaque. Even for the most organised of us, this process can be really tedious and tiring. And who knows, while you’re comparing the interest rates, they change midway!
For those focusing on their career, raising their little ones or managing other responsibilities, spending their free time comparing home loan packages takes the backseat. More often than not, the easiest route when managing your home loan is to stick with your existing one, even though it may not be as competitive.
Solution: Use PropertyGuru’s mortgage tool to compare home loan packages across all major banks.
When comparing home loans, you can input your property type, remaining loan amount, remaining tenure, and current interest rates.
Finding a home loan package most suitable for your needs is kinda like looking for the right partner on dating apps; it takes time, effort, and a lot of thought.
With a click of a button, our search tool can provide you with the day’s best rates from more than 10 banks, including information on the lock-in period, reference rates, etc. At a glance, you’re able to cross-compare rates across banks and select the financial institution which has a package most in line with your financial needs.
2. Dealing with Paperwork
Earlier on, we mentioned that one pain point we identified in our Singapore Consumer Sentiment Study H1 2021 is the unfamiliarity with the paperwork required when refinancing. Just makes you reminisce about the time you got your HDB flat and had multiple appointments to sign so many papers that you probably lost count.
Good news: the entire process of refinancing is now digital. No need to hunt down a printer or go down to the bank and wait in line for hours. Documents you’ll need include your NRIC, latest outstanding loan statement, latest CPF property withdrawal statement, latest notice of assessment from IRAS (up to 2 years), 12 months of CPF statement history and latest three months’ payslips.
Those refinancing an HDB flat will need to prepare their HDB flat information and HDB financial information, and you could need more documents if you just changed jobs, are earning rental income, or refinancing from another bank.
Related article: The Ultimate Refinancing Checklist: Key Documents To Prepare, Fine Print to Read and More
Solution: There are mortgage brokers (like PropertyGuru Finance) you can hire to take care of all the paperwork. Our team of professionals deal with mortgaging and loan financing and act as an intermediary between borrowers and lenders.
Aside from aiding you with paperwork, we can identify the best available deal from our pool of lenders – at no cost to the borrower as we earn purely through commissions from the banks.
We also provide personalised financial advice to make better home loan decisions!
Just discuss your home buying journey and needs with one of mortgage specialists. We’ll then guide you to the best suitable home loan, and will do everything from submission to tracking your loan approval. Easy peasy!
Whether you’re someone who has a poor credit score or a freelancer trying to secure a mortgage, you can tap on our industry expertise for some smart, honest advice.
3. Identifying the Right Time to Refinance
Identifying the right time to refinance involves various factors. On top of monitoring the market to see what’s the best deal out there, you need to understand the terms and conditions of your existing loan (you don’t want to be ‘surprised’ by the pre-payment penalty amount) and the new loan package you’re planning to refinance to.
Also, you’ll need to take your refinancing goals into consideration and your financial situation too. This includes your Total Debt Servicing Ratio (TDSR), Loan-to-Value (LTV) limit, credit score and consistent income.
Additionally, you need to consider the refinancing fees to see if it’s worth refinancing and know the exact refinancing costs involved. If you’re unsure about all of these factors, you might not know how to ‘calculate’ the best time.
Solution: Instead of spending the better part of your evenings doing not-so-quick maths, why not outsource this job to SmartRefi, our free-to-use, online automated mortgage tracking tool?
After keying in your goals and mortgage details, you can sit back and relax and let SmartRefi do the work for you.
What is SmartRefi by PropertyGuru Finance?
Knowing that many find it challenging to find the time and energy to track when their lock-in period ends, stay on top of the latest rates, and compare them to their existing mortgage. That’s where SmartRefi comes in.
This nifty tool aims to remove barriers to refinancing so homeowners can maximise their savings, reduce uncertainty, increase flexibility, and get closer to their financial goals.
SmartRefi tracks your existing mortgage against the daily market interest rates of applicable loan packages from all major banks. Your loan structure and refinancing costs will also be considered. Then, it’ll determine the estimated net potential savings on your current home loan and provide a refinancing recommendation.
Whenever there are savings tracked on your loan, you’ll be notified by SmartRefi’s Switch Alert via email so you can seize the best opportunity to switch and save. Just like setting a price alert for when airfares are on sale or getting notifications from online shopping platforms that the item in your cart is now cheaper!
If the deal looks good to you and you’re ready to refinance, SmartRefi’s Switch Alert allows you to lock in your savings through PropertyGuru Finance’s mortgage experts. All that’s left to do is leave our home loan advisors to process your loan.
More FAQs about Refinancing Home Loans
Can You Refinance Your Home Loan with the Same Bank?
No. This will be called repricing. Refinancing is when you switch to another bank.
Can I Refinance my HDB loan?
Yes. You’re allowed to refinance your HDB loan with a financial institution that’s regulated by the Monetary Authority of Singapore.
What Is a Cash out Refinance?
Also known as a home equity loan, this lets you borrow against the value of your private property even while you’re still paying your mortgage.
How Often Should I Refinance My Home Loan?
Every 2 to 3 years. This is because most home loan packages have a lock-in period of this duration and once that is over, interest rates will increase.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
PropertyGuru will endeavour to update the website as needed. However, information can change without notice and we do not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time. Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs. PropertyGuru does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, PropertyGuru, its employees do not accept any liability for any error or omission on this web site or for any resulting loss or damage suffered by the recipient or any other person.
This article was written by Mary Wu, who hopes to share what she’s learnt from her home-buying and renovation journey with PropertyGuru readers. When she’s not writing, she’s usually baking up a storm or checking out a new cafe in town.
