When purchasing a property in Singapore, most buyers will require a home loan. For those buying an HDB flat, there is an option for taking an HDB loan if you meet the eligibility criteria. If you are not eligible for a HDB loan or are buying a private property, your only option would be to take a bank loan to purchase your property.
Bank loans come with a lock-in period
Typically, bank home loans come with a lock-in period of 2 to 3 years. During this period, you cannot refinance your mortgage with another bank, or make an early repayment for the loan. If you wish to do so, you will likely incur a penalty fee of close to 1.5%, as well as legal and other administrative fees.
Thereafter, your home loan interest rates usually increases
After the lock-in period, the interest rates that you pay on your home loan will usually increase. The higher interest rate also means that your monthly mortgage repayment will rise.
So what can you do?
If you want to avoid paying more, you can either refinance or reprice your home loan. Let’s compare those options.
Refinancing vs repricing: what’s the difference?
The concept of refinancing and repricing is similar – it involves taking out a new home loan. Instead of paying the increased rate after your lock-in period, you sign a new contract, with a new (usually lower) interest rate and lock-in period.
The difference between the two is whether you switch to a new bank (refinance), or continue with your current bank (reprice).
What is refinancing?
When you refinance, you replace your existing home loan package with a new one from a different bank. By switching to a more competitive loan package, you can save money by making lower monthly payments.
Say, after your lock-in period, your interest rates increased to 2.5%. However, with the help of PropertyGuru Finance, you find out that another bank offers a 1.5% package. If you decide to refinance with this new bank, you’ll pay less interest and save more in your monthly mortgage payments.
What is repricing?
When you reprice your mortgage loan, you stay with the same bank but sign a different loan arrangement – usually on improved terms to save you money.
Understandably, as banks seek to acquire new customers, the interest rates for refinancing are usually more attractive than for repricing. The benefit of choosing a reprice is that you can avoid the extra paperwork and legal fees when you refinance with a different bank.
Your bank knows this too, so whether you can convince it to offer you an improved loan package that is comparable to refinancing rates would very much depend on your negotiation skills.
There are many ways of repricing your housing loan to lower your repayment. For example, if you currently have a fixed-rate loan, you could consider switching it to a variable interest rate loan that generally offers lower interest.
Another option is to reprice with shorter loan tenure so you pay less interest over the full duration of the loan.
Refinancing vs repricing: which is better?
Since we all have different financial needs and backgrounds, there is no straight answer for this. To help you arrive at a decision, however, we can compare things like the costs, time and effort required for refinancing versus repricing.
Costs involved in refinancing vs repricing
Whether you choose to refinance or reprice, you should be prepared to incur some upfront cost (e.g. legal fees, valuation fees, administrative fees, etc).
In general, refinancing tends to cost more than repricing because of the additional legal fees involved. In total, it usually comes up to about S$2,000 to S$3,000. If you refinance before your lock-in period is up, you’ll also have to pay a penalty fee that usually amounts to 1.5% of your outstanding loan. That means if you have S$200,000 remaining on your loan, you may have to pay a S$3,000 penalty.
That said, most banks offer some form of subsidy or cash back to help home owners with this upfront cost. For this, it’s best you check with the bank (or your broker) directly.
Refinancing vs repricing eligibility
In terms of paperwork, repricing is much more straightforward. The bank already has all your details, and you’re just switching to a new home loan package. There isn’t much to fuss about.
If you are refinancing your home loan with another bank, however, it’s essential to know whether you will be eligible for the refinancing. To begin, you first need to meet the Total Debt Servicing Ratio (TDSR) requirements. Your credit worthiness may have also deteriorated (or improved) while you were locked into your initial bank home loan.
Furthermore, each bank will also have their individual assessment criteria, so it’s good to have an understanding of whether you will be eligible for refinancing with the bank before applying for it.
If you are not able to refinance with a new bank, it might be prudent to consider repricing with your existing bank instead.
Use our TDSR calculator to find out how much of your gross income you can put towards your home loan
Time required to refinance or reprice your home loan
Repricing can usually be completed within a few weeks since there is less paperwork and shorter administrative processes. On the other hand, refinancing can easily take a few months before the paperwork is processed and the loan gets approved. If you are looking to get a lower interest rate as quickly as possible, repricing with your existing bank might be a better option.
Conclusion: should you refinance/reprice your home loan?
At the end of the day, cost savings is the main reason for homeowners to either refinance or to reprice their mortgage.
Generally speaking, if you prefer a more convenient and hassle-free solution that helps you save at least a little, a reprice is probably more suitable for you.
On the other hand, if you want to maximise savings and get the most attractive housing loan package in current market conditions, you might wish to refinance your mortgage.
But perhaps the most important thing to remember is that you should only refinance/reprice if the new interest rate that you enjoy provides cost savings in the next few years compared to the cost you incur for refinancing or repricing your mortgage.
Ask yourself: after deducting all legal fees and penalty charges, how much do you save each month? Experts recommend only going ahead with a refinance or reprice if you can “breakeven” after a year.
For example, say your legal fees are S$3,000 and you can save S$400 every month by refinancing your mortgage loan. If you divided the cost of refinancing by your savings, you’d find it takes only 7.5 months to enjoy savings. In this case, refinancing may be a good idea.
Need more help? Talk to a PropertyGuru Home Finance Advisor
Refinancing your home loan with a new bank tends to be more cumbersome than repricing your mortgage with your existing bank. This is why you want to make sure the incentive for doing so is worth the additional effort.
To guide you with this, you can consider speaking to a PropertyGuru Home Finance Advisor. Our advisors will not only save you time by taking you through what you need to look out for when refinancing your loan, but can also advise you if it’s worth refinancing your home loan with a new bank, or whether you should reprice it with your existing bank.
PropertyGuru Finance partners with all major banks in Singapore, which means you also get instant access to the lowest interest rates available, limited-time bank promotions on offer, and independent and unbiased advice from our in-house home loan specialists.
Disclaimer: The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. PropertyGuru recommends that you seek professional financial advice before acting on any information in this article.
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