Every homeowner in Singapore with a mortgage has come across the crucial crossroads of asking “should I reprice or refinance my home loan”. Ensuring that you understand both aspects is paramount to deciding which option is best to take, especially when interest rates are cyclical and banks start to decrease their mortgage rates.
This guide will aim to breakdown the details involved when deciding between a repricing or refinancing:
Repricing is whereby you only switch from your current home loan package to another home loan package within the same bank. Similar to refinancing, the aim of repricing is to enjoy savings or to get a home loan package that fits your changing needs.
Refinancing is the process of switching your current mortgage loan to another bank. To do so, you close your present mortgage loan account and set up a new home loan account in another bank. However, this process is more tedious because you have to switch from one bank to another.
You might opt to refinance your home loan if you are looking for a better deal on your home loan.
|Definition||Switching your current mortgage loan to another in a DIFFERENT bank.||Changing your current mortgage loan package to another in the SAME bank.|
|How long does an approval process take?||3-5 days for a credit approval and a notice period of 2 months||1-2 days for a credit approval and a notice period of 1 month.|
|How much in advance to start the process?||3-6 months prior to the end of the lock-in period with your current bank||1 month prior to the end of the lock-in period on your existing home loan|
|Total timeline involved||Approximately 13 weeks||Approximately 5 weeks|
|Waiver of fees||Depending on your outstanding home loan amount||Full waiver of repricing fees is generally provided|
|Costs Involved (without any waiver or subsidies of fees)||Usually around $2,500||Maximum of $1,000|
The main categories of housing loan interest rate packages offered by banks in Singapore are Fixed Rates, Board Rates, Fixed Deposit Rates, and SORA rates. Repricing with your existing bank can only provide a specific interest rate package that the bank is offering therefore your options are limited.
Refinancing gives you the freedom to choose an interest rate type that fits your needs regarding stability (specifically if you are considering a fixed rate mortgage) and savings without being confined to a specific bank alone.
Common features of mortgage loans offered by banks in Singapore include making partial repayment without penalty, waiver of penalties when you sell your property, and changing to another interest rate package free of charge. With a repricing, the features available are limited as it is dependent on the variety your existing bank can offer.
A refinancing on the other hand comes with flexibility that enables you to customize your mortgage package to suit your needs.
An interest offset mortgage account is simply a repayment account connected to your mortgage loan. This type of account works like a savings account, although it earns you a high-interest rate which matches your home loan interest rate.
However, only a few banks in Singapore offer interest offset mortgage accounts because of a reduction in net interest margins. If you have excess funds stored waiting for an investment opportunity, you can benefit from an interest-offset account because this account does not lock-in your funds. Besides, it allows you to pay off your home loan faster.
If having such an account is a priority and your existing bank is able to offer it then a repricing would make sense assuming that the mechanics of the interest offset account is the most attractive in the market. If that is not the case with your current bank then a refinancing would make the most sense.
To attract a huge depositor base, banks normally run promotions that are linked to their mortgage for any fresh funds (usually cash) being deposited into the bank.
Examples of promotions run by banks in Singapore to attract more depositors are a lower housing loan interest rate package, cash rewards, and a priority or privilege relationship with the bank.
These benefits more often than not are not available for repricing with your current bank, but you can enjoy them by refinancing to a different bank.
Repricing takes around 1 to 3 working days for an approval. A notice period of 1 month usually also applies. No conveyancing (law firms) or valuation is required. The best time to reprice your home loans is 1 month before the lock-in period ends.
Approval for a refinancing takes around 3 to 5 working days, after the signing of the letter of offer with the bank, the conveyancing law firm then serves the notice period of 2 months. Once the refinancing notice ends, the loan is brought over to the new bank. The best time to refinance is between 3 to 6 months before the lock-in period on your existing mortgage loan ends.
Repricing fees vary across different banks and consist of administrative fees only which range from $300 to $1,000.
Refinancing has two main fees:
Legal fees: When refinancing, the process involves conveyancing because your current banks need to release the title deed of your property, to use it in the bank you intend to refinance. The legal fees are charged for this reason. For private property, the legal fee is $1,800-$2000, while the legal fee for an HDB property is $1,500.
Valuation fees: Depending on your property’s market value and for refinancing reasons, the bank you want to refinance generates a formal valuation report. This is to determine the market value of your property, and then determine if they will refinance your mortgage loan and how much. The valuation fee for a private property is $150-$700, while that of an HDB property is $150-$200.
One ongoing cost: Fire insurance premium (this cost does not differ from your existing fire insurance from your existing bank – based on the reinstatement value of your property.
For a HDB property, you can avoid refinancing fees as long as your outstanding mortgage is more than 200k. Banks will be able to provide full subsidies for all refinancing fees.
For a private property, ensure that your remaining home loan is more than 450k for all your refinancing fees to be fully offset by cash subsidies provided by the majority of banks in Singapore.
Do note that whenever a bank provides any form of subsidies or cash rewards, there is a clawback period of 3 years applicable.
This means although you may have a no lock-in package, you must stay with the bank for 3 years or pay off the subsidies/rewards provided in full (no proration is allowed.)
However, there are certain ways you can use to avoid the clawback penalty, but only in very specific situations.
Repricing fees are within the range of $300 to $1,000 depending on the bank. More often than not, your existing bank is willing to provide a discount or fully waive off the repricing fees.
You just need to make a request or inform them that a competing bank is providing a full offset of all your refinancing fees to make you switch banks. That usually works in majority of repricing fee waivers.
If you are a homeowner with a mortgage, your priority should always be maximizing interest savings and reducing any interest expense paid to the bank.
Furthermore, having flexibility enables you to plan better for future contingencies if you want to utilize a selling opportunity or be prepared for an adverse interest rate environment. For these reasons, refinancing usually is a better and much more holistic option.
You should consider repricing if you do not have enough time to research or make a comparison with other banks, you do not require specific features for your home loan, and you are ready to pay a little more in interest to your existing bank. However, you must make some interest savings.
Therefore, when considering to refinance or reprice your home loan, more than not, a refinancing might have the better advantage.
|Maximise interest savings||Yes||Limited|
|Special mortgage features||Yes||Limited|
Finally, it is important to note that there is also a rare possibility of a repricing package checking all the above boxes. Therefore, doing further research enables you to take advantage of the best option available. If you need any guidance or insights, a DollarBack Mortgage consultant is always happy to chat!
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