1. Refinancing vs. Repricing
Homeowners in Singapore often confuse **Refinancing** with **Repricing**. Both aim to reduce interest rates, but the mechanisms and costs differ:
- Refinancing: Moving your home loan to a **different bank**. This requires a new loan agreement, legal valuation, and has higher upfront costs, but generally secures the absolute lowest market rates.
- Repricing: Switching to a new loan package within the **same bank**. This is faster, requires less paperwork, and has lower legal costs, but rate savings are usually less competitive than refinancing.
2. Refinancing Costs & Lock-in Periods
Refinancing must make financial sense. To evaluate profitability, we calculate the payback period against the costs involved:
Key Refinancing Fees:
- Lock-in Penalties: If you refinance during your current loan's lock-in period, you face a penalty fee (usually **1.5%** of the outstanding loan amount). It is best to initiate refinancing 3 months before your lock-in ends.
- Legal & Valuation Fees: Refinancing requires property valuation (approx. SGD 300 to 500) and legal work (approx. SGD 1,800 to 2,500).
- Legal Subsidies ("No-Cost" Deals): For loan sizes above SGD 500,000, new banks often offer cash rebates or legal subsidies to fully absorb valuation and legal costs, making refinancing effectively free of charge to you.
3. Fixed Rates vs. SORA Floating Rates
In Singapore, bank loans are anchored to either fixed packages or floating benchmarks. The floating benchmark is **SORA (Singapore Overnight Rate Average)**, administered by MAS.
When to Choose Fixed Rates:
Fixed rate packages protect you from sudden interest rate rises. They are ideal if you want payment certainty or if market interest rates are projected to rise over the next 2-3 years.
When to Choose SORA Floating Rates:
SORA floating rates track global interest rate cycles. They are ideal if interest rates are expected to fall, as your monthly installments will automatically decrease as market indices adjust downwards.
4. The Refinancing Timeline
Refinancing takes time to execute. Planning ahead prevents you from rolling over onto high board rates:
| Timeframe | Required Action |
|---|---|
| 4 Months Prior | Contact Singapore Mortgage Brokers to run rate checks, calculate TDSR, and select the optimal package. |
| 3 Months Prior | Submit formal notice of redemption to your current lending bank (which requires 3 months written notice) and sign the new bank offer. |
| 1-2 Months Prior | Valuation is completed, and law firms execute legal filings. |
| Release Date | New bank takes over the loan. Your monthly installments drop to the new lower rate. |