Repricing Vs Refinancing Home Loan in Singapore: What Is The Difference?
Updated: Dec 16, 2022
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Most property owners especially first-time property buyers are confused between the terms repricing and refinancing. Some buyers might not have even heard of the terms repricing or refinancing. So, what are the main differences between repricing vs refinancing your home loan in Singapore, why do you need to do repricing or refinancing, and which one is more worth it to do so as a home buyer?
Let us bring you more clarity on the differences between repricing vs refinancing for home loan in Singapore today.
What is Repricing?
Repricing your home loan in Singapore means to request for and switch to another home loan package internally within your current bank.
What is Refinancing?
Refinancing your home loan in Singapore simply means to switch to another bank’s home loan package, or moving your HDB home loan from HDB to a bank home loan instead.
Why Do Property Owners Do Repricing or Refinancing?
For those who are currently on a bank home loan, chances are your interest rates would be higher after your locked in period has ended especially when interest rates are going to rise soon. Therefore, repricing or refinancing your loan would allow you to switch to another lower interest home loan in Singapore.
Therefore, property owners tend to tap on repricing or refinancing to obtain lower interest rates or switch to a different type of interest rate (will explain more about the different types of home loan interest rates available in Singapore in another article). Some property owners also reprice or refinance to obtain additional features that their current loan package does not have such as partial repayment allowed or waiver of penalty due to sale, or interest offset features etc.
For those who are currently on a HDB home loan, refinancing to a bank home loan presents an opportunity for you to save on interest costs as the HDB home loan interest is pegged to our CPF OA interest rate. A HDB home loan interest rate is always 0.1% above the CPF OA interest rate which is 0.1% + 2.5% currently = 2.6% which may also change if our CPF OA interest changes, while a bank home loan in Singapore is always averagely about 1.5% to 1.8% fixed for HDB properties in the long term.
Here is an example for your understanding:
HDB Home Loan
Loan Amount (HDB property) - $500,000
Loan Tenure – 25 years
HDB Home Loan Interest – 2.6%
Total Interest Paid After 25 years - $180,504
Vs Bank Home Loan at 1.5% Averagely
Loan Amount (HDB property) - $500,000
Loan Tenure – 25 years
Bank Home Loan Interest (on average) – 1.5%
Total Interest Paid After 25 years - $99,904
Vs Bank Home Loan at 1.8% Averagely
Loan Amount (HDB property) - $500,000
Loan Tenure – 25 years
Bank Home Loan Interest (on average) – 1.8%
Total Interest Paid After 25 years - $121,277
The amount of interest savings is substantial in the long term, and we feel that every penny counts. It just does not make sense to pay more interest when that extra amount of interest that you pay every month can go more towards repaying the principal amount that you have borrowed instead.
But do take note that after you make the switch to a bank home loan from a HDB home loan, there is no U-turn already. Therefore, it is very important to know how home loan in Singapore banks work. You can speak to us to find out more as well if you need any guidance.
How To Do Repricing?
For repricing and changing to another package within your current bank, all you need to do is to call into your current bank 1 month before your locked in period ends and see what new home loan package the repricing team can offer you. It only takes 1 month to convert into that new package should you decide to reprice.
How To Do Refinancing?
For refinancing and changing to another home loan package from another bank, property owners will tend to start looking for new loan packages 3-4 months before their locked in period ends as your current bank will require you to serve 2 to 3 months’ notice before you can leave the bank. Therefore, 1 month is for you to source, decide and submit for approval with the new bank, and 2-3 months is the notice period to be served to your current bank, which is equivalent to 3-4 months in total.
How Much Does It Cost to Do Repricing?
Repricing in Singapore costs about $300 to $1000 depending on which bank you are currently with. The bank will charge this small administrative fee to process your loan and switch you over to the new package internally, unless your current home loan package comes with this feature called the ‘free conversion’. Should your current home loan package have this feature, then you do not have to incur additional fees and you can just change to another package internally within your current bank at no additional costs involved.
However, do take note that the ‘free conversion’ feature varies for different loan packages, some banks allow free conversion anytime within the locked in period, some after 12 months and some only after the locked in period has ended. Do read through the terms of your current bank Letter of Offer properly or you can call into your current bank to check if your previous home loan package allows you to be eligible for the free conversion.
How Much Does It Cost to Do Refinancing?
For refinancing, there are mainly 2 fees that property owners will incur – legal and valuation fees. For private property, legal fee is approximately $1800 (payable by CPF/cash) and valuation fees are approximately $160.50 to $500 (payable by cash only). For HDB, legal fee is approximately $1600 (payable by CPF/cash) and valuation fees are approximately $160 to $250 (payable by cash only).
For private property owners that has an outstanding home loan amount of above 450k to 500k, you will typically receive either a $2000 to $2200 cash rebate, $1800 legal subsidy or full legal and valuation subsidy depending on which bank you are refinancing to. Subsidizing your fees for refinancing is a way for banks to woo new customers over, but these rebates and subsidies come with its own terms and conditions as well which I will touch more on it in a bit.
For HDB owners that has a home loan amount above 250k or 300k, you will usually receive either an $1800 or $2000 cash rebate, close to or fully subsidizing the abovementioned fees that you will incur for refinancing. This applies to HDB owners that are currently on a HDB home loan and want to refinance over to a bank home loan as well.
If your home loan amount is below 450k – 500k for private property owners and below 250k – 300k for HDB home owners, fret not, there are still cash rebates and legal subsidies provided by the banks just that they will only provide you a cash rebate or legal subsidy of 0.4% percent of your home loan amount, meaning you will need to top up the rest of the legal and valuation fees yourself.
Clawback Period After Refinancing Your Home Loan
As mentioned above, all cash rebates and subsidies from your new bank come with terms. There is this bank jargon called the ‘clawback period’.
By subsidizing your costs for refinancing, the bank expects you to stay with them for at least 3 years. These cash rebates and subsidies that the new bank will provide comes with a 3-year clawback period meaning to say that if you leave the new bank that you are refinancing to in less than 3 years either by refinancing out to another bank or selling your house away, they will take back and clawback the cash rebates or legal subsidies they have given to you. This applies to every bank and every package regardless.
So, for example, if you were to refinance to 2 years fixed and locked in package with the new bank where the 3rd year is a floating rate. Technically, you can leave the bank and refinance elsewhere after your 2 years locked in period is up. But they will clawback the cash rebate or legal subsidies they have given to you due to the 3 years clawback period.
Therefore, in order not to return these cash rebates and legal subsidies, you will be subjected to the floating rate on the 3rd year. So, what most property owners will do is that they will take up a fixed and locked in rate of 3 years which is in line with the 3 years clawback period typically.
Likewise, if you have opted to refinance to a floating rate, you will have to see past the loan spread on the 1st 2 years and take note of the spread on the 3rd year as well due to the 3 years clawback period of the cash rebates and legal subsidies provided when you embark on refinancing of your home loan in Singapore.
So, Should I Do Repricing or Refinancing Then?
First things first, if you are currently on a bank home loan in Singapore, check your bank Letter of Offer to see if your current package has a free conversion feature in it. If it does, call into your current bank to see what are the packages they can offer you currently. If it does not, call into your current bank to check how much their repricing fees are and what packages they can offer you currently.
Secondly, source around from all the banks for the lowest interest rate in the market or alternatively, you can speak to us as well as we help our clients compare loan interest rates from 13 banks and financial institutions in Singapore when they engage us in their property purchases. Thereafter, we will also guide them through the home loan process, what to take note of, and manage their home loan in Singapore for refinancing or repricing in the long term.
Thirdly, compare between the repricing package that your current bank has offered you vs the packages that other banks are offering for refinancing and see which one is more worth it to switch to in terms of costs, type of interest rate, or if they have package features that you want.
How Do I Start Repricing Then?
As mentioned above, if you are going to go ahead with repricing, all you need to do is to call into your current bank and let them know that you accept the repricing package that they offer. Your current bank will process everything internally and issue you with a new bank Letter of Offer once the loan package is out. It will only take 1 months’ time before your new loan package will kickstart.
How Do I Start Refinancing Then?
If you are going to go ahead with refinancing, you will need to resubmit all your documents including your NRIC, 3 months’ payslips, government portal documents as well as your current bank statement showing outstanding loan amount and submit the new bank’s application form. Once your bank home loan has been approved, you will need to sign and accept the new bank Letter of Offer, before sending this Letter of Offer to the law firm to serve 3 months’ notice to your current bank and start on conveyancing.
Do let us know if you need any help with refinancing of your home loan in Singapore.
Typically, upon receipt of the bank Letter of Offer, the law firm will email you to ask for answers to these set of questions before they can proceed to serve the 2-3 months’ notice for you:
- Whether you are within any locked in period
- Whether you are within any claw back period
- Whether you are required to redeem only on an interest reset/review date
- Whether there is any undisbursed amount of your loan; and
- Whether you intend to use your CPF savings or cash in the event that your redemption amount is higher than the new loan amount granted by your new mortgagee
With regards to the interest reset/review date as mentioned above, the reason why the law firm will ask this is because generally if your current home loan package is on a floating SIBOR interest rate, you may only be able to leave your current bank on a certain date which is called the interest reset/review date. The bank will charge a hefty penalty fee should you fail to redeem your current home loan on the interest reset/review date.
Therefore, it is best for property owners to call into their existing bank to check and confirm on all the above-mentioned questions before allowing the law firm to proceed to serve the 2-3 months’ notice for you. Do take note that the banks will not disclose the above information to third parties due to privacy and confidentiality, therefore even the law firm is unable to check on the above information on your behalf. Lastly, the law firm will also ask you to confirm if you will be paying the legal fees by CPF or by cash.
Last thing to take note of would be that the bank’s valuer will be contacting you to do a valuation of your said property within 1 month from your acceptance of the Letter of Offer while the law firm will contact you 1 month before the refinancing completion date to drop by the law firm to sign on mortgage documents. This is the entire refinancing process and the key things to take note of.
At the end of the day, deciding between repricing vs refinancing for your home loan in Singapore depends on numerous factors such as the interest rate you are currently on, whether there will be an increase in your interest rates after your locked in period ends, what is the interest rate projection in the coming years, what rate should you be opting for next, the bank home loan packages being offered for repricing vs refinancing, the costs involved to go with either and whether there are any special features that the new bank home loan package has to offer that your current one does not have.
There is no right or wrong really choosing between repricing vs refinancing, it just depends on what you need and which you think is better for your home loan in Singapore.
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Contact us directly if you need any assistance with your property buying & selling needs, we also help our buyers with understanding mortgage loans, types of interest rates, refinancing, and equity term loan matters.
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