First, what is repricing?  It simply means you renegotiate the interest and package terms with your current bank and recontract with them, hence you “re-price”.

On the other hand, refinancing involves you taking your home loan in Singapore from one bank to another.  Doing so requires slightly more time and effort but the potential interest savings over the long run can be significant as many of our clients have discovered. Simply because it pays to stay ahead of the curve and take active steps to position your mortgage according to movements in the interest rate cycle. Furthermore, in the age of digital banking and advent of mortgage comparison sites, the time and effort required to refinance has been greatly reduced.

Beyond interest savings, what are some other considerations you should look at before you decide whether to reprice or refinance your home loan?  There are eight questions you need to ask yourself:

1. How early should I start my review?

Unknown to most, you can ink a new home loan contract with another lender as early as six months before your lock-in expires.  This can work extremely well for you in periods of interest rate escalation or when you think the trend for interest rate is going up. You can lock down a much lower fixed mortgage rate early, rather than waiting for a few more months.

However, in normal situations, the usual timeframe to review your loan is about three to four months before the expiry as you will need to give a two months’ redemption notice to your existing bank. Also, most repricing banks may not want to quote you if you call them too early.

2. Should I use a mortgage broker?

The services of a professional mortgage broker have become prevalent in recent years and it goes beyond just rate comparison. Tapping into a trusted broker’s network and resource can get you access to the most reliable team of mortgage specialists in the banks, law firms, financial advisor, etc., leading to a hassle-free and seamless transaction.

More importantly now, as the brokerage industry evolves, there are different levels of advisory you could choose from. Any mediocre broker can help you to compare for difference in rates of between packages. But a broker who’s worth his salt will go beyond that and provide you with advisory that’s based on macro factors and interest rate cycle.

The best part is the service comes free to homeowners as banks pay brokers a small referral fee as part of the distribution costs involved, which does not affect your interest rate. You may want to validate this. Unknown to most, banks pay distribution costs be it in the form of referral fees to third-party brokers, or as commissions for in-house mortgage specialists as part of their pay package.

3. Will I be buying or selling a property soon?

Even before you delve into rates, think about how likely will you be selling the property within the next two to three years.  There’s no point saving 0.20 per cent in interest now but end up paying a 1.50% redemption penalty (on the outstanding loan amount) if you end up selling within the lock-in period!  The usual events that trigger the need to sell revolves mostly around family needs: to move closer to new school, new work place, or to upgrade to condo or landed, and so on. Just plan ahead.

Even if you are not selling, what about the need to buy a second or even a third investment property in which case there may be a need to decouple an existing property holding.  The best time to decouple will be during a mortgage review when the lock-in ends (decoupling involves a part-sale of property which attracts the same lock-in penalty).

Any mediocre broker can help you to compare for difference in rates of between packages. But a broker who’s worth his salt will go beyond that and provide you with advisory that’s based on macro factors and interest rate cycle.

4. Will I need to borrow more or pay down in the next five years?

Our needs evolve at different stages of our lives.  There are times when you want a debt-free lifestyle nearing retirement, and there are times when you need capital to exploit opportunities during your most productive years.  Is there any need for an injection of funds in the next five years?

For private property owners, a home equity loan (or what is known commonly as term loan in the industry) is the cheapest leverage you can ever find as it is secured against your property.  There’s also lower or almost no risk of a “margin call” or high penalties to pay unlike business loans, revolving lines of credit, personal loans, etc.

The best time to gear up on a home equity loan term loan will be during refinancing when you get the lowest interest package on a combined bigger loan comprising both the housing loan and the term loan.  At the same time, the lock-in expiry for both portions of the loan will be close (usually within a month) which facilitates your mortgage review later.

Also, cashing out during refinancing will cost you the least in terms of transactions costs as the new bank will help to defray the costs involved with legal subsidy or cash rebate. In fact, when you work with us on your mortgage, our law firm partner charges no additional legal fees. Contrast that with taking up a term loan with your existing bank which typically cost at least $1,200-1,500 in legal fees plus another $500 in valuation (estimated for condo, even more for landed), with no subsidy provided.

5. What’s the current outlook for interest rate?

After discussing the less obvious questions on refinancing, we come to the most commonly-asked – should you go for fixed or floating home loan rate?  

Forecasting the direction of travel on interest rate is hard business and not every mortgage broker is willing to stick their neck out for that. If you source for rates on your rate, that could be even worse when you speak to bankers who are sales-oriented and target-driven who will dish out views that support whatever they are selling.

However, it is imperative to understand where are we now in the interest rate cycle before you sign on any dotted line. Find out more about our track record in giving interest rate forecast.

6. How can I right-size my loan balance and tenure to save more?

Mortgage amortisation essentially comprises four components: principal loan, tenure, monthly instalment and interest rate.

Most people look at only the component of interest rate during a mortgage review, ignoring other ways of saving on interest costs by either paying down a portion of the principal loan, or reducing the loan tenure to the extent that the monthly instalment remains affordable and is commensurate with your higher income over time.

7. How do I see my job situation?

Do you see any headwinds in the industry you are in? Will there be disruptions to your income?  Or the need to move to another position, job or even location for greater prospects, growth & development, or sometimes for personal reasons?  In a fast-changing world and evolving job market with AI, it will be wise to plan ahead.

For some, it may become harder to refinance a home loan when income situation changes later especially mortgages for an investment property which you may be asked to pay down 3% of the loan as part of DRP (debt reduction plan) if you fail to meet the TDSR requirement.  A floating mortgage rate with a reasonably-low thereafter spread (the mark-up above SORA) might be a better option in such a situation.  This is because fixed rate mortgages always revert to a much higher spread when the lock-in or fixed term ends.

8. Lastly, what’s the costs involved and are there any advantages that I should be made aware of other than interest rate? 

Repricing attracts just a small admin fee (or conversion fee) as there’s no need to pay lawyers to redo the mortgage documents. Nowadays with intense competition, banks would mostly waive this fee.

On the other hand, refinancing involves a change of the mortgagee bank with new contracts to be signed and caveats to be lodged.  A new valuation report is also needed.  However, the new lender typically offers a legal subsidy or cash rebate to defray all the transactions costs involved entirely depending on your loan size, sometimes with excess in your pocket.

Cost must also be weighed against the benefits.  Banks offer different features on the mortgage product which can be of immense value depending on one’s need in the next few years.  You may opt for home loan packages that offer a full waiver of penalty on sale of property during the lock-in period, or one that offers you a free conversion whilst lock, or one that offers an interest-offset mortgage account.  Some may allow you to do a hybrid structure where there are optionality to convert and switch between fixed or floating rates which are pre-determined so you don’t miss any potential to profit should interest rate change course. Still, others may offer you a high-yielding savings account when you move your home loan over, the most well-known being Multiplier account with DBS home loan.

However, it is imperative to understand where are we now in the interest rate cycle before you sign on any dotted line. Find out more about our track record in giving interest rate forecast.

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Disclaimer: MortgageWise Pte Ltd is not in the business of providing financial advice nor are we licensed or regulated by MAS under the Financial Advisory Act (FAA) in Singapore. All information presented are opinions and any representations given, whether by way of example, illustration or otherwise, are purely portfolio allocation advice and not recommendations or inducements to buy, sell or hold any particular investment product or class of investment product.  All opinions are generic in nature and are not tailored to the particular circumstances of any reader.  Seek advice from a qualified financial advisor before making any investment decision.

Though every effort has been made to ensure the accuracy of the information and figures presented, we make no representations or warranties with respect to the accuracy or completeness of the contents in this blog and specifically disclaim any implied warranties or fitness for a particular purpose.  We shall not be held responsible for any financial loss or any other damages suffered whatsoever, directly or indirectly, if you choose to follow any of the advice or recommendations given in this blog.d shall not be constituted as financial advice.  We cannot be held responsible in any way for any financial losses arising from your mortgage decisions should you choose to rely on any of our viewpoints and opinions.