When does refinancing or repricing a home loan make sense in Singapore?
MoneySense calls a move to a new lender refinancing, and a switch to another package at your own bank repricing, or conversion. It suggests reviewing your loan regularly, particularly once the lock-in period is over, because penalties may apply within it. MoneySense also suggests comparing your bank's repriced offer with other packages: their repayment schedules, advertised and effective interest rates, and costs such as penalties, claw backs, legal fees and conversion fees. Under MAS rules, an owner-occupier who refinances a housing loan is exempt from TDSR but must still meet the lender's credit assessment, and an investment property loan can be refinanced above the TDSR threshold only with a debt reduction plan of at least 3% of the outstanding balance over up to 3 years, plus that credit assessment. If you bought an HDB flat, you cannot refinance an existing bank loan with an HDB loan.
Repricing and refinancing: the difference
MoneySense defines refinancing as switching from your existing home loan to a new lender with lower interest rates. Refinancing at your current bank is called repricing, or conversion. Before you do either, MoneySense suggests weighing three options: staying on your current package, converting to a different package with your existing bank, or taking a refinanced package with a different bank.
If you bought an HDB flat, one option is closed. MoneySense notes that HDB flat buyers are not allowed to refinance an existing bank loan with an HDB loan. The other direction is open: MoneySense's table of HDB and bank loans says an HDB loan can switch to a bank loan.
Timing and the lock-in period
MoneySense suggests reviewing your home loan regularly to see whether refinancing would save money, particularly once the lock-in period is over. Its first step is to ask your existing bank for repricing options before you check with other banks. Check, too, whether the lock-in still applies to your loan, because certain penalties may then apply. MoneySense's table of HDB and bank loans says a bank loan may incur fees for refinancing within the lock-in period.
On a bank loan, the variable rate takes over once the fixed-rate lock-in ends, MoneySense says. It adds that the promotional rate at the start is lower than the rate for the rest of the loan. A separate guide explains how fixed and floating home loan rates work.
The costs to count
MoneySense lists four questions to put to your current bank. Will you pay a fee for ending your present package, such as penalties within the lock-in period, claw backs, additional legal fees or conversion fees? Can the loan be converted to a more attractively priced one, and what are the charges? Does the new package have a lock-in period, how long is it, and what charges are involved? And can the bank show you how you would be better off with the refinanced package?
Comparing the offers
MoneySense says it is always a good idea to compare the repriced loan from your current bank with other refinancing packages. Compare the updated repayment schedules to see the interest payable. Compare, too, the advertised rates and effective interest rates (EIR) of each package.
Banks are required to give you a fact sheet that explains the key features of a residential loan package. MoneySense suggests using it to ask about penalty fees for early repayment, and about bundled products such as a mortgagee interest policy.
The MAS rules on a refinanced loan
MAS says the total debt servicing ratio (TDSR) rules apply in general to refinanced loans. For property loans where the option to purchase was granted on or after 16 December 2021, the TDSR threshold is a maximum of 55% of the borrower's monthly income. If you are an existing borrower refinancing a loan taken to buy a property, you are exempt if you are an owner-occupier. You must still meet the lender's credit assessment criteria.
MAS's refinancing rules cover the mortgage servicing ratio (MSR) as well. For an owner-occupied property, neither ratio is required. For an investment property, they are required unless you meet two criteria. You must commit to a debt reduction plan, repaying at least 3% of the outstanding balance over a period of up to 3 years, and you must meet the lender's credit assessment criteria. If you meet both, you may refinance an investment property loan above the TDSR threshold.
MAS sets a tenure cap on a refinanced housing loan, but no loan-to-value limit. Lenders can grant up to the full amount outstanding, as long as you meet their credit assessment criteria. To find the tenure cap, take the number of years since the property's first housing loan was first disbursed. If the property is an HDB flat, subtract that number from 30 years; if it is any other property, subtract it from 35 years.
If CPF savings pay the loan
When you refinance, MoneySense asks you to check the CPF housing withdrawal limit that applies to you. For private homes, the CPF Board's Housing Scheme terms allow CPF savings to repay a housing loan that results when the first loan is moved to a different lender. The condition is that the first loan was taken to finance the purchase.
The same terms require you, your financier or your law firm to tell the CPF Board in three cases: when the housing loan is refinanced to another financier, when the financier increases the loan amount, and, if CPF pays your monthly instalments, when the loan's tenure changes. The CPF limits themselves are covered in the guide on using CPF savings to buy a home.