Guide to Home Loan Refinance In Singapore: Should You Do It Now?

Amid the outbreak of COVID-19, US Federal Reserve had an emergency interest rate cut in March 2020. This resulted in a dip in SIBOR, which stands for Singapore Inter Banks Offered Rate. So, is it a good time to refinance your home loan now? Before we get into the details, here’s a briefing explanation on what is SIBOR.

What is SIBOR?

SIBOR is the daily interest rate at which Singapore’s banks, known as Contributor Banks or Panel Banks, offer to lend unsecured funds of a reasonable size to other banks in the country’s money market. The SIBOR comes in tenures of 1, 3, 6 and 12 months.

SIBOR is widely used in the Asian region as a reference rate for various types of loans, including floating and fixed rate home loans.

SIBOR Home Loans

In Singapore, banks offer fixed-rate and floating rate home loan packages based on SIBOR rate plus an extra amount, called a spread. The SIBOR has fallen to 0.99% as of 20 March 2020.

Refinance Home Loan - SIBOR

Source: Sibor.sg


Refinance Home Loan - SIBOR rate

Source: Sibor.sg

With these plunging SIBOR rates, it seems very attractive to refinance your home loan. So, is it a good time to refinance your mortgage loan now?

There are lot of questions that you may ask when it comes to home loan refinancing. Should I refinance? What’s the best refinancing rate in Singapore now? Is DBS, OCBC, Citibank or HSBC home loans better? Comparing refinancing home loan packages in Singapore can be quite a tedious and time consuming process. But before you head towards this process, let’s look some of these factors to see if you should refinance your home loan.

What should I consider before I refinance my home loan?

Here are a few factors to take note before you consider refinancing:

  1. Lock-in Period Expiry

Loan packages usually come with a minimum lock-in period of 2 to 3 years. If you choose to move your loan to another bank, there is a usually a penalty involved. The penalty is usually about 1.5 %to 2% of the outstanding loan amount.

Based on a $750,000 loan, this comes up to a substantial amount of $11,250. In this situation, you should not consider refinancing because the penalties will not justify your cost-savings.

  1. Clawback Period Expiry

When you sign up for a new loan, banks usually throw in extra goodies, such as subsidies for legal fees, valuation fees and fire insurance premiums. Unless the current loan is more than 3 years, if not the bank may clawback these subsidies, which can be anything from $2,000 to $5,000.

  1. Notice period

Banks will also need you to give them a notice period for cancelling the loan without being subjected to a penalty. While this is not a major barrier, the more important implication is on the timing of your refinancing. If your lock-in period ends in June, you will likely start researching on your refinancing options in March. When the time comes for you to refinance, interest rates might have already gone up.

  1. Legal Fee and Valuation Fee

When you refinance your home loan, the legal fees for refinancing is around $2,000 to $3,000. However, some banks will offer legal subsidies to partially or fully offset these fees. There will also be valuation fee, which costs between $150 to $1,500 depending on the type of property.

  1. MSR/TDSR

The bank will have to re-access your finances when you refinance your investment property. Owner-occupied property is exempted.

Conclusion

In conclusion, refinancing of home loan is about cost saving. You would have to access whether by refinacing to the new loan package give you a substantial amount of savings. If your exisiting loan amount is small, for instance $300,000, the cost saving for a 1% difference in interest rate may not be substantial for you to go through the hassle.

If you need advice on home loan or refinancing, please contact us.

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