Refinance Your Home Loan Guide

For the past one year, housing loan interest rate has been coming down from its peak. Interest rate has reached a high of over 4% back in early 2024 and by end 2025 it has fallen below 2%. The interest rate downturn is a great relief for all home owners and property investors who are still diligently repaying their property loans.

For those who have taken up HDB housing loan with concessionary rate of 2.6%, by refinancing your HDB loan to a bank loan, you can immediately enjoy more interest savings for the next few years. (Note that once a HDB loan is switched to bank loan, it cannot be reversed back to HDB loan.)

So, it could be your time to act now. Here's everything you need to know before you start your Refinancing journey.

How much can I Save by Refinancing?

Let’s look at a $500,000 home loan over a 25-year loan tenor. Example by reducing interest rate by 1%, the total interests you can save amount to $9,784 in the next 2 years and $14,498 in the next 3 years. Monthly instalment can be lowered by $245. This is summarised in the Table A below. The savings are definitely worth the effort.

Table A - $500K Loan over 25 Years

	2.60%	1.60%	Savings
First Year Interests	$12,829	$7,880	$4,949
Second Year Interests	$25,279	$15495	$9,784
Third Year Interests	$37,342	$22,843	$14,498
Monthly Instalments	$2,268	$2,023	$245

Bank Loan Refinancing or Repricing?

While Refinancing is the transfer of a property loan to another bank with a more competitive offer, Repricing involves the conversion of your current loan package to a new package offered by your existing bank.

The Repricing process may be easier and it takes a month for the new rate to take effect. However, repricing rate may not be as competitive when compared with other banks. Therefore, it is wiser to compare the packages offered by different banks in the market. The most convenient and reliable way is to get the help of a mortgage broker who can help compare your options and assist you through the process if you opt to refinance your loan.

What are the Costs of Refinancing?

You will incur legal fee as a conveyancing law firm is required to assist in the refinancing process.

Legal subsidies or cash rebates are offered by the refinancing banks to cover your refinancing cost. This is typically offered for bank loan above $500K for private properties and $250K / $300K for HDB flats. All banks’ subsidies or cash rebates usually come with a 3-year clawback condition. As long as the loan stays with the bank for minimum 3 years, no refund of the subsidies or cash rebates is required.

The other cost is valuation fee which is as charged by the bank. This fee is required as bank will assign their valuer to do on-site valuation to confirm the property value.

What are the Types of Interest Rates available for Refinancing?

Banks offer a variety of loan packages catering for different needs. There are 2 main categories: Fixed Rate and Floating Rate packages. The most common fixed rate packages are 2 years and 3 years fixed rate. After the fixed rate term expires, the loan will be on floating rate till loan maturity. As for floating rate packages, the most common package is pegged to 1-month Compounded SORA and 3-month Compounded SORA.

The first thing to decide is whether to go for fixed rate or floating rate. Fixed rate gives borrowers peace of mind as the monthly instalment is predetermined for the next 2 to 3 years. Depending on the interest rate outlook, some borrowers may prefer floating rate to take advantage of interest rate downcycle.

How to Compare Refinancing Home Loan Rates Meaningfully?

When considering your refinancing options, what matters is how much interests you get to save in the next few years and whether it is worthwhile to refinance. The interest savings for the next few years have to be significant enough, even after factoring in the refinancing cost.

Example, for a private property loan that is below $300K, the interest savings may not be big enough to cover the refinancing cost, therefore may be better off to reprice with existing bank. 

Besides presenting to you the most competitive refinancing packages, a good mortgage broker will help you with the analysis so that you can make an informed decision.

What else to consider besides Comparing Interest Rates?

When considering your next loan package, it is a good time to review your plan for the property and the housing loan. Example, whether there is a possibility of selling your property or paying down the principal in the near future. Let your mortgage broker know about your plan so that he/she can recommend and highlight suitable loan packages that can best meet your requirement.

If you are planning to make lumpsum prepayment, this may be a good time to do so before you start on a new package, especially so, if the new package comes with prepayment penalty.

When refinancing, you may also take the opportunity to review your monthly instalment and loan maturity, as you are allowed to adjust your loan tenure subject to bank’s approval.

What is the Difference between Refinancing Own-stay Property and Investment Property?

All refinancing loans are subject to banks’ internal credit assessment criteria. Mortgage property that is owner-occupied has less stringent loan assessment criteria as compared to investment property. For investment property, borrowers can choose to commit to a debt reduction plan with a repayment of minimum 3% of outstanding loan over a period of up to 3 years and waive TDSR requirement, or to meet the 55% TDSR requirement.

What are the Reasons to Refinance your Home Loan?

The most common reason to refinance your home loan is of course to lower your interest cost. By lowering your interest rate, your loan principal will also reduce at a faster rate.

Besides this, there may be other reasons for refinancing. Some may want to get additional loan for personal use or investment purpose. This is called Equity Term Loan which is only applicable for private properties.

Others may prefer to refinance to another bank as they prefer certain features/benefits that their existing bank is not able to provide.

When can I Refinance my Housing Loan?

Before you jump straight into it, you have to check if your loan is ready for the move.

Check if your loan is still within the lock-in period. If so, you need to know exactly when the lock-in period will expire.

To avoid heavy penalty fee charged by banks, refinancing must be timed such that the redemption happens after the lock-in expiry date.

Another important thing to know is existing bank requires 2 months’ advanced notice period for full redemption of loan. This means you can start exploring your refinancing options around 3 to 4 months before the lock-in expiry date. This should give you sufficient time to review and to get your refinancing loan approved.

For condo that is under construction or recently attained TOP, there is bank loan still pending drawdown. Existing bank will charge cancellation fee on the undisbursed loan if you refinance the loan at this point. To avoid paying cancellation fee, you can either reprice with existing bank or wait till the loan is fully drawn down before refinancing.

As for HDB loan, there is no lock-in period. Borrowers may refinance their HDB loan to bank loan any time after loan is disbursed. It will take about 2 months for the loan to be transferred to the refinancing bank.

Refinancing Process - What to Expect?

1. Compare the Refinancing options.
2. Apply for Bank Loan.
3. Bank approves the loan and issues Letter of Offer for borrower's acceptance.
4. Appointment of a conveyancing law firm that is in bank's panel.
5. Law firm serves 2 months' advanced notice to existing financier.
6. Bank valuer arranges for on-site valuation.
7. Law firm advises and manages the process till completion.
8. Borrower signs mortgage documents at lawyer officer.
9. Bank advises on account opening and inform borrower about loan repayment.

What's Next after Refinancing?

Your loan will be locked in for a period of time, depending on the commitment period of your current loan contract. Do keep a record of the date of completion of the refinancing as this is the start date of the lock-in period.

Interest rate is usually higher after the initial 2 to 3-year term depending on your loan package. Banks do not normally remind borrowers when their lock-in period is expiring. Taking a proactive approach to keep track and review your loan periodically will ensure you are timely in refinancing or repricing your home loan and thus avoid paying higher interests to the bank.

  

Time to Refinance your Loan? Yes, let's start the refinancing process now!

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