Refinancing

A mortgage is not fixed for the life of the loan. Most Singapore packages run 2 to 3 years before reverting to a less competitive rate, so borrowers periodically look at moving the loan to capture a better deal elsewhere. Refinancing means a full switch to a new bank, involving fresh legal work and a new valuation. Repricing means staying with the existing bank but moving onto one of its current packages, usually faster to arrange and with fewer new costs than a full switch.

The lock in period on the existing package is the gate for both moves. Redeeming or substantially reducing the loan during lock in typically triggers a penalty, commonly calculated as a percentage of the outstanding loan, and some packages also claw back any legal or valuation subsidy the bank provided at the start. As lock in nears its end, usually worth starting a few months out, it becomes worth comparing what the current bank will reprice to against what other banks would offer to refinance to, since the current bank's own reversion rate after lock in expires is rarely the cheapest option available.

Borrowers commonly let the lock in period lapse and drift onto the reversion rate without comparing anything, effectively overpaying for months before eventually acting. Others chase the lowest headline rate on a refinance without pricing in the legal and valuation costs of a full switch, which can outweigh the savings on a small remaining loan balance or a short remaining tenure. Some also refinance straight into a new lock in period without checking whether their own plans, a likely sale, an upgrade, might need the loan redeemed again soon after.

Before acting, check the exact lock in expiry date and penalty schedule stated in the current loan letter, work out the all in cost of refinancing, legal subsidy, valuation fee, any clawback, against simply repricing with the same bank, and confirm whether a new package's own lock in period realistically fits how much longer the property is likely to be held.

As an illustrative example, a borrower with two years left on a three year lock in package who spots a materially better rate elsewhere still needs to weigh the redemption penalty and any subsidy clawback against the savings from switching now, versus simply waiting out the remaining lock in and refinancing once it ends. In many cases the arithmetic favours waiting, but not always, particularly if the rate gap is wide and the remaining loan balance is large enough that the savings over the remaining lock in period outweigh the penalty.

Winfred Quek is an Associate Marketing Consultant at Crestbrick Pte Ltd (CEA Licence No. L31010886H). CEA R073319H. This page is for general information only and does not constitute financial, investment, or legal advice. Verify current figures with IRAS, HDB, CPF Board, or MAS before making any decision.