How To Refinance A HDB Loan In Singapore
It’s possible to refinance your HBD loan with one from a bank or a financial institution regulated by the Monetary Authority of Singapore.
Like many Singaporeans looking to purchase an HDB flat, taking out an HDB housing loan is the first option. The loan allows you to borrow up to 85% of the property value with a manageable down payment.
However, with the anticipated increase in interest rates, you can switch from an HDB loan to a bank loan to save more. This guide will look at the switching process, everything you need to know, and more.
Switching From HDB Loan To Bank Loan
Refinancing means switching from your current home loan to another bank home loan. Mostly, when Singaporeans refinance, they’re looking to lower mortgage interest rates to save more. They could also seek a higher loan amount to get excess cash, commonly referred to as cash-out-refinancing. So, how do you switch from an HDB home loan to a bank loan?
Compare The Mortgage Perks Available In The Market
The first step is comparing the mortgage packages available in the market. Ensure you compare the interest rates provided by the different financial institutions and the various incentives and packages offered when refinancing. However, you can contact a home refinancing advisor since you won’t find the best deals outright provided by the banks.
A mortgage advisor can help you understand the different loan rates, fees, terms, and preferential and exclusive rates that are not provided. This will give you a better chance at getting a good home loan perk suitable for your financial situation.
Prepare The Required Documents
The next step after deciding on a bank and its given packages are preparing the required documents. These documents include the following:
- HDV flat details
- Updated outstanding loan statement
- HDB financial information
- Updated Notice of Assessment from IRAS
- Updated CPF Property Withdrawal Statement
- Employment contract (if less than three months)
- Payslips from the last three months
- Stamp Certificates and Tenancy Agreements (those with rental income)
Likewise, with this much paperwork, you can contact a loan advisor to help you prepare the documents and pick out any red flags that could cause rejections or delays in your application process.
Get Your Property Valued
The third step is getting your home valued by the bank. The bank will normally send a certified valuer to assess the market value of your property based on the location, size, age, and property condition.
Engage A Legal Firm To Handle The Complex Tasks
The final step is engaging an attorney or a law firm to perform the complex tasks required in the refinancing process. Some tasks include sending a notice of loan redemption to the existing bank, receiving the preliminary loan redemption statement, and lodging the transactions, among other contracts.
You’ll be required to sign a few documents here and there, and that’s where a conveyancing lawyer comes in to help with the complex tasks.
Banks in Singapore typically have a panel of pre-approved legal firms to work with.
There are several factors to consider when refinancing a home loan in Singapore. These include the following:
Mortgage Servicing Ratio (MSR)
The Mortgage Servicing Ratio is part of the borrower’s gross monthly income towards the repayment of all property loans, including the loan you’re applying for. The MSR is currently capped at 30% of a borrower’s gross monthly income to be eligible.
Total Debt Servicing Ratio (TDSR)
The total Debt Servicing Ratio is part of the borrower’s gross monthly income going towards the repayment of the monthly debt obligations, including the property loans and the loan you’re applying for. The TDSR limit is currently at 55% and below your gross monthly income.
Loan-to-Value (LTV) Ratio
A bank’s LTV limit of up to 75% will apply when switching over. This implies that if you’ve not repaid at least 25% of the home’s purchase price or valuation up to date, you’ll need to top up extra CPF or cash to bring it at par with the LTV.
In other words, if you’ve not repaid the amount, you can still refinance but will only be allowed to loan up to 75% from the financial institution, and you’ll have to pay the balance in CPF or cash.
Minimum Income Criteria
The minimum income criteria will also apply,which differs from bank to bank. The criterion depends on whether you’re purchasing the home on your own or with a co-signer and the amount the bank loan is for.
If you meet all the above, you can switch from an HDB loan to a bank loan in Singapore. It’s important to note that once you make the switch, you cannot refinance back to an HDB loan.
Why You Should Refinance HDB Loan
Some Singaporeans prefer the stability provided by an HDB home loan. However, a 2.6% interest rate is steeper than most bank loans, which average under 2%.
The difference may appear insignificant initially, but it accumulates over the years, which you could otherwise save.
For instance, a bank rate of 1.3% on a $400,000 home loan saves you around $5,200 annually. Moreover, some banks provide subsidies and incentives on top of these low-interest rates. Some banks cover the incurred fees, such as legal and valuation fees, to assist borrowers in minimising refinancing costs.
Other reasons to refinance include reduced monthly payments and cash-out-refinancing. It’s important to always get a lower interest rate that will lower the monthly installments.
The refinancing window begins four months before the existing home loan renews. So, if you don’t refinance and stay with the current home loan, the mortgage rate will always increase, and you’ll end up paying higher monthly installments.
On cash-out-refinancing, you can use your private property as collateral to borrow a home equity loan. Normally you can borrow up to 75% of the property’s value minus the balance and any CPF used for the property in cash.
You can take this cash for investment purposes or debt consolidation. It’s, however, important to avoid borrowing the maximum cash-out allowed to allow leeway for changes in the property’s valuation.
When You Should Refinance Your HDB Loan
When The Interest Rates Are Lower
The low-interest rates imply more disposable income, which you can put in your retirement fund, savings account, or any future plans.
Therefore, if you don’t plan to vacate your property soon, refinancing could be an ideal way to save some money.
When Your Financial Situation Changes
If, for some reason, your financial situation changes and you’re looking to decrease or increase your loan term, understand the following:
- Lengthening the loan tenure allows you to lower your monthly repayment. This helps ease your cashflow, but it may increase the overall amount you’ll pay.
- Shortening the loan term lets you repay your loan faster, with similar monthly instalments but lower interest rates.
Note that refinancing might be a bad idea when there are expensive switching costs, penalties to early loan repayment, and when you switch to a loan with higher rates.
How Long Does Refinancing HDB Loan Take?
Once your preferred bank has confirmed your approval, your appointed attorney has to submit the accepted Letter of Offer to the managing HDB branch to apply for the home loan refinancing.
From there, the branch provides a redemption statement to the solicitor on the outstanding loan amount to discharge on the completion date. Home refinancing usually takes about six to eight weeks from the application date.
What To Consider
- Is it worth refinancing?
- Are the refinancing costs justifiable?
- Always keep your debts low if you’re planning to refinance
- Check for free repricing options before refinancing
- Remember, the loan is still capped at 35 years
- Consider the long-term rates and not just the enticing rates of the new home loan
- Avoid refinancing if you’re in a lock-in period
- Work with a home loan expert to help with comparisons and the paperwork involved
When Singaporeans refinance, they’re looking to lower mortgage interest rates to save more. You could also take out cash-refinance home equity on the property by refinancing.
The process of refinancing is simple as long as you meet the requirements. So, if you are looking for ways how to refinance HDB loan, BST Credit is your best bet.
We pride ourselves as one of the best home loan lenders in Singapore, with some of the best packages.
Frequently Asked Questions
What Is A Lock-In Period?
The lock-in period is the minimum number of years you’re required to stay with the bank for a specific package. So, a penalty might apply if you decide to repay partially, fully, or refinance.
Which Is The Best Home Loan In Singapore?
No bank will constantly provide the best package, especially with volatile interest rates. So, compare with several banks or work with a home loan adviser.
What Are The Costs Involved When Refinancing My Home Loan?
There are two costs for refinancing: the legal fees payable directly to the lawyer and the valuation fee paid to the bank.
What Is The Difference Between Repricing And Refinancing?
Repricing is the switch to a different interest rate package within the same financial institution. There is normally a repricing fee of between $800 and $1,000.
On the other hand, refinancing is switching to a different bank and borrowing a new housing loan package from them.
Does Refinancing Affect My Credit Score?
While the process could slightly lower your credit score, the effect is negligible and temporary. You can be sure that your credit rating will bounce back to normal.
How Often Can I Refinance A Home Loan?
There are no limits to the number of times you can refinance your home loan in Singapore as long as you save on interest rates. However, it’s crucial to plan to avoid the penalty fees.