Should you take the easy route to reprice your mortgage?
I suspect innately we all know the answer. That’s why you check around first before you sign the repricing offer quoted by your bank. And that’s probably how you stumbled on this blog article.
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For those who are new to mortgages, repricing refers to renegotiating your home loan package with your current lender when you are out of your lock-in period, as opposed to refinancing the mortgage out to another bank. Hence, you “re-price” the loan. As the loan stays within the same bank, there’s no need to engage a lawyer to redo the legal instruments and hence there’s no legal nor valuation fees involved. It’s the easiest in terms of effort, but as of all things in life, the easiest route may not always be the right one.
The truth is there’s always another bank who will quote you a lower rate to entice you over. That’s the beauty of free market competition. Those of us who are old enough to remember how much airfares used to cost, before the advent of internet and budget airlines, can attest to that! Free market competition coupled with the digital revolution has been one of the chief disinflationary forces this century which explains why inflation remains muted for so long until 2021-2022.
Whenever there’s limited supply like landed properties for residential homes or shophouses for commercial, prices go up. Whenever there’s limited supply of service providers, prices also go up. The same applies to mortgages. And when it comes to something as costly as mortgage interests (the typical private home owner pays $18,000 a year in interests at long-term average rate of 2.50% on $750,000 loan), the more banks the merrier! That’s good enough reason not to reprice but keep switching banks whenever you are out of lock-in. Not only will you help to keep competition alive in Singapore’s small mortgage market (some banks do quit the scene), you will definitely save a decent sum of money over time rather than giving it to the banks.
How much will you save? We estimate that to be at least 0.20% on your outstanding loan each time you do a refinance. So, for the average loan of $750,000 that’s $1,500, enough to bring your family for a staycation or even a short trip. Is that worth all the trouble of application and submission of documents to a new bank? Let me answer that indirectly through an analogy. Imagine you are shopping for the best rate for a 12-month fixed deposit placement of $150,000 today, forgoing $1,500 savings is akin to you opting for an FD rate of 3% when you can actually go for one that pays you 4%. Is it worth the trouble?
Over the entire tenure of a 30-year mortgage with 10 rounds of refinancing, it could all add up to more than $15,000 which is almost one whole year of mortgage interest saved.
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We estimate that (interest savings) to be at least 0.20% on your outstanding loan each time you do a refinance. So, for the average loan of $750,000 that’s $1,500, enough to bring your family for a staycation or even a short trip.
Incidentally, many may not have realized that with digitalization in banking, the entire application process for mortgages has been greatly enhanced and is now quite a breeze. All that is required is a link to sign-up online via singpass at MyInfo, plus one or two more documents like your mortgage statement and payslips. Speak to us to find out more.
That’s not all. Besides interest savings, there are also other salient factors you need to consider when it comes to mortgage planning. When’s the last time you were held back from enjoying a lower mortgage rate because you were still in your lock-in period? What most homeowners fail to realize is how “lock-in” is another form of price to pay, which can costs a lot more than the headline interest rate you thought you’re getting. This is especially true in cycle-turning years of 2019-2020 and the current period 2022-2023.
That’s why getting the right advice working with a true mortgage professional when you seek to refinance rather than reprice can proved to be pivotal. Repricing officers from banks are there to merely sell the banks’ prevailing packages to you. They will not be able to give you that vantage viewpoint on what to do at different points in the interest rate cycle.
To give you a clear understanding on all the differences between refinancing your mortgage to another bank or simply repricing your current mortgage, we’ll stack them up for you here:
| WHEN YOU REFINANCE | WHEN YOU REPRICE | |
|---|---|---|
| Efforts involved | No need to call the bank as long you are out of lock-in and clawback (usually >3yrs) period. | Need to call the bank and be kept waiting for the best quote |
| Documents submission | Need to submit latest income documents via MyInfo | No need to submit any documents |
| Interest savings | Usually enjoy 0.1-0.2% savings or more | Usually will not get the lowest quote in the market |
| First-mover advantage | Broker will alert you 4-6 month ahead. Able to secure mortgage rates in advance especially during cycle-turning years when difference is huge | Banks can usually quote only within 3 months from expiry. Most end up late as they took action only upon receiving rate revision letters. |
| Interest-cycle based advisory | MortgageWise.sg consultants advise based on the interest rate cycle – you have the best chance to “stay ahead of the curve”. | Bank officers typically sell to you packages from one bank, hence few can give proper advisory that’s based on the market and the interest cycle. |
| Taking up MWL or term loan (for private property only) | Refinancing is the best point to gear up so that the lock-ins will coincide, with no extra legal fees which are mostly covered by bank’s legal subsidy | Additional legal fee $1,500-2,000 to pay with no subsidy to help defray the costs |
| Relationship with a trusted advisor | With one text message, access the latest mortgage rates from a trusted advisor anytime you or your family members need to review | You have to repeat the efforts of googling, researching, speaking with different people and deciding who to trust, every 2 to 3 years. |
| Other benefits (promotions) | Enjoy the best promo, incentive, vouchers, etc. as a new customer to the bank which typically has higher marketing budget for new account acquisitions. Not only that, a new bank allows you to discover new mortgage features which you may not be aware of. Eg. waiver if penalty on sale, premier banking privileges, interest-offset account, etc. | Not entitled to any promotional gifts as existing customer of the bank. |
Of course, this article may sound self-serving which I do not deny. However, the points represented are objective and accurate which we stand to be corrected.
No bank, for that matter no profit-driven company, likes it when existing customers attrite to another bank. But enlightened companies will do well to understand two things – first, the information age with its disinflationary influence is unstoppable as I have already explained. As long as homeowners need to compare mortgage rates, comparison sites and brokers like us will continue to fill that gap in the market place. Second, therein also lies the opportunity for banks and companies to focus on retention which is what free market is all about. Consumer is the ultimate winner here.
For free market to work, you have to do one thing – exercise your free choice.
Need more advice? We don’t just throw you a set of rates, or get different bankers to sell to you. Not only do we help clients navigate through Singapore mortgage rates quick and fuss-free, we show you how best to position and profit from the interest rate cycle, be it for residential or commercial property loan. Work with us today and you’ll also be helping to support our social cause!
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Disclaimer: MortgageWise.sg endeavours to bring the best insights and knowledge in our expert domain of mortgage planning to the market. Still, all viewpoints expressed in our blog remain as opinions of the writer, and 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.
