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Planning to Refinance? Here's How to Compare Mortgages

PropertyGuru Editorial Team
Planning to Refinance? Here's How to Compare Mortgages
If you are like most Singaporeans right now, then you must be considering refinancing your home as a nice way to make some considerable savings. The bad economy at least has one thing going for it – low interest rates for the property market here in Singapore. Singapore’s property market has had a positive outlook since the third quarter in 2020 and is expected to stay resilient in 2021 as well.
If you are a homeowner who is considering refinancing – now may be a great opportunity. To get started, here’s what you need to take note of as you compare mortgages to find the most suitable one for your finances!

How to Compare Mortgages when Refinancing

Comparing Home Loan Interest Rates

This is the most influential factor for most people and with good reason. Low interest rates lower your cost of borrowing, which is one of the main reasons why people choose to refinance in the first place. However, before you jump at the cheapest mortgage rate you can find, you may want to decide if you prefer fixed or floating rate packages.

Fixed rates

Fixed mortgage rates guarantee a particular interest rate for a certain number of years (e.g. 1.5% for 3 years). More often than not, this does not exceed five years. Once the stipulated period is up, the interest rate usually increases, as it gets pegged to one of the bank’s internal board rates. Fixed rate packages are determined by the bank and differ from bank to bank.
Fixed rates are usually slightly higher than floating rates (see below) as they offer you stability for at least a few years. If you like predictable monthly instalments, then you may prefer this.

Floating Rates

Floating rates are trickier and can cause uncertainty amongst homeowners because your monthly instalments are not fixed. This is because the floating rate is pegged to another benchmark rate and moves in tandem with them. There are three different types of floating-rate benchmarks in Singapore: board rates, fixed deposit rates and the Singapore Interbank Offered Rate (SIBOR). SIBOR is the most popular as it is a published rate (hence, considered reasonably transparent).
Do note, however, that SIBOR is in the midst of being phased out. In a few years, it will likely be replaced by the Singapore Overnight Rate Average (SORA).
If you choose to adopt a SIBOR or SORA floating rate package, then you will have to keep a keen eye on the market conditions. Generally, Singapore’s property market is fairly stable and the MAS is likely to intervene if things get out of hand. This is not the case for internally-determined bank rates like board rates and fixed deposit rates.

Home Loan Lock-In Period (also called ‘Penalty Period’)

Many bank mortgages have what is called a lock-in period, which is the period during which you cannot exit the loan (including refinancing) without penalty. This depends on what package you choose and can vary from package to package, let alone bank to bank.
These can range from one to five years and can affect you if you do not wish to stay at this property for a long time, you decide to refinance again in the near future or you wish to pay off your loan as quickly as possible.

Subsidies and Discounts

Most banks take full advantage of the fact that you are a new refinancing customer and will offer you savings and attractive cost waivers up front. So do make sure to check with your bank (our mortgage advisor). Do note that these subsidies usually come with a clawback clause, which means you will need to pay them back if you do decide to leave before your lock-in period is up.

Costs of Refinancing

As this involves forking out cash, we took the effort to break it down for you fee by fee. Everything from legal fees to clawback fees (if any) on your current mortgage loan will have to be paid upfront when you sign on the dotted line of your new mortgage loan with your new bank.
Though some of these costs can be paid by CPF, they can cost up to $5,000 depending on your type of property, and the position you were in with your previous mortgage loan at the time of refinancing. It is advised to start researching your refinancing options about six months before your current mortgage lock-in period because it takes about four to six months to complete the entire process.

Non-Financial Considerations

Fixated on scoring the lowest interest rates, some homeowners don’t think much about the bank they’re refinancing to. However, we recommend doing some research and comparing financial institutions as well.
Home loans are a long-term commitment, so your working relationship with the bank and your assigned officer has to be satisfactory. After all, you will be dealing with their customer service for the next few years at least! Always pick one you feel comfortable with and feel you can depend on them for advice and accurate information no matter the time.
You should also consider your future plans for the property: How long do you intend to stay in this home? Will you be selling it soon? These will affect whether or not it’s a good time for you to refinance too.

Getting a Hand with Refinancing

Refinancing, though less complex than most think, does still come with its fair share of gritty paperwork. If you don’t have the luxury of time to manage the refinancing process, outsource this to a trusted mortgage advisor such as PropertyGuru Finance.
Our home finance advisors can help you every step of the way – from when you begin comparing banks and packages, to when you apply to refinance your home loan and finally transition to the new bank.
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Disclaimer: The information is provided for general information only. PropertyGuru Pte Ltd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.