If you’re a homeowner today, buying that property would easily have been the biggest purchase in your life. Whether it turned out to be the cosy BTO/resale flat near your parents’ place, or that swanky dream condominium down in district 9/10/11, you probably would have scoured the land for the best home loan package on the market, before resigning yourself to that 30 or 35-year liability (i.e. the maximum loan tenure for housing loans in Singapore).
30/35 years is really not a short time at all. In case you think that’s the end of the matter and are prepared to service the loan until your hair starts to grey (or fall out, whichever comes first), don’t. We are here to present you four reasons why you should consider refinancing or repricing your home loan every two to three years – or basically, as soon as you are able to.
For the uninitiated, you may refer to this article to understand the difference between refinancing and repricing.
1. Secure lower interest rates
Since any interest rate charged by the bank on your home loan effectively reflects the cost of you loaning money from the bank, it would make perfect sense to refinance or reprice your home loan to another package which charges a lower interest rate.
The savings from a lower interest rate can prove to be significant. Take the recent situation in 2018 for instance, where some local banks announced two successive hikes to their fixed deposit rate-pegged floating rates in that single year alone. As a result, one of the local bank’s interest rate rose from a mere 1.3% in 2017, to 1.6% by the middle of 2018, and then to a whopping 2.3% by the beginning of 2019.
Considering that some of the most competitive interest rate options at present are now hovering somewhere between 1.8-2.0%, you would be short-changing yourself if the thought of refinancing or repricing your home loan never crossed your mind. Even a difference of say, 0.3% in the interest rate on an outstanding $800,000 loan could translate to savings of roughly $2,400 a year.
2. Convert to a fixed or floating rate package
Whether you settled for the fixed or floating rate home loan package initially, there comes a point in time when you should probably reassess the market conditions to see if the other type has become the more cost-effective option.
Generally, you should consider refinancing or repricing to a fixed rate package in the face of increasing Singapore Interbank Offered Rates (SIBOR). Incidentally, SIBOR rates have actually been on a general upward trend since early 2017, though they have started to dip a little as of late.
The converse is also true – that is, you should switch to a floating rate package if SIBOR rates are seeing a downward trend; except that you should also look out for whether the bank’s charges (also known as the bank’s “spread”) might eat into some of your potential savings.
Because SIBOR rates are the most transparent kind of benchmark rates when it comes to floating rate packages, you would probably have an easier time monitoring the trends and assessing when would be most ideal to refinance or reprice. The same, unfortunately, cannot be said for other types of floating rates that are pegged to the bank’s fixed deposit rates or internal mortgage board rates.
Even if you are the kind who would firmly stand by the stability and financial certainty of fixed rate packages, refinancing or repricing to a fresh fixed rate package should be top of mind – especially when nearing the end of the stipulated period (usually between two to five years) for which the interest rate is fixed. After all, the fixed interest rate is never fixed forever, and would ordinarily switch to a floating rate after the stipulated period ends.
3. Take advantage of the TDSR exemption for refinancing of owner-occupied home loans
Refinancing your home loan in the current regulatory climate would also be a wise move.
Since June 2013, the Monetary Authority of Singapore (MAS) implemented the Total Debt Servicing Ratio (TDSR) rules as part of a package to cool the property market. The TDSR rules apply to anyone applying for a home loan, as well as any loans secured by a property. Under the rules, banks have to ensure that your monthly repayments for all your debts – mortgage, credit cards, car loans, personal loans etc. – do not exceed 60% of your monthly income.
You can think of the TDSR rules as MAS’s way of ensuring that you do not over-leverage yourself i.e. borrow more than you can afford to. Of course, the TDSR rules ultimately impact the amount of home loan you qualify for.
To be clear, the TDSR rules also apply to the refinancing of home loans.
However, the good news is that since further tweaks were made by MAS in 2014 and 2016, you qualify for an exemption from the TDSR rules if you are an existing borrower looking to refinance your home loan for a property in which you yourself are an owner-occupier.
In other words, if you are thinking of refinancing a home loan for the property in which you live and breathe (and eat and sleep and… you get the idea), you can do so without having to care about the TDSR rules.
Which also means that you don’t have to rush to clean up other debts before you consider refinancing your home loan.
So take advantage of this exemption while you can – because we never know when the winds of policy change might hit.
4. Benefit from occasional offers and promotions
Like the seasonal Black Fridays and Singles’ Days, home loan refinancing offers and promotions do appear from time to time. At times, these may come in the form of promotional interest rates; if not, banks may try to dangle some subsidies, rebates or vouchers to defray refinancing costs.
It pays to be on the lookout for such offers and promotions because some of them may be available for a limited time only. Take DBS’s last CNY refinancing offers for instance, with its enticing cash rebates and CapitaVouchers worth up to $3,888 up for grabs, for online refinancing applications made between 2 January 2020 and 7 February 2020.
With the above reasons, we are confident that you probably don’t need much more convincing to consider refinancing or repricing your home loan. After all, the single most important objective of refinancing or repricing is to optimise the terms of your home loan and minimise the cost of borrowing from the bank. Or put simply – to save money.
In this regard, do note that refinancing or repricing your home loan may involve some incidental costs and fees which you might want to also factor in.
If you think you are ready to take the next step, why not start off with GoBear’s home loan comparison tool?