Mortgage refinancing has been on the rise recently, following a drop in fixed mortgage loan rates. According to UOB, HDB loan refinancing transactions have increased by 85% in 2024 from a year ago.
The key question for many property owners is whether and when to jump on this trend. Refinancing offers several advantages for homeowners, especially in making home loan repayments more affordable.
To answer this question, we’ll explore the specifics of mortgage refinancing, and share insights to determine the right time to refinance your mortgage.
Mortgage refinancing is the process of obtaining a new mortgage loan from a bank or private loan provider. This is usually done to obtain better loan terms and conditions, such as lower interest rates or lower monthly instalments. The process of refinancing involves the new lender paying off any outstanding mortgage you have with your original lender. You will then repay the new loan with more favourable terms to the new lender.
Beyond securing better terms and conditions, refinancing your home loan can help lower monthly payments. It can also be used to adjust your loan tenure to suit your financial needs better or be used to meet financial needs (if you opt for cash out refinancing). Below we’ll share a few recommendations for when you should consider refinancing.
Most banks and private mortgage providers offer special promotional interest rates during the first few years of your contract with them, usually between 2 to 5 years. This is known as the lock-in period, whereby you enjoy special rates as long as you do not pull out of the contract and seek to refinance their loan with another lender.
Once the lock-in period ends however, your mortgage interests will usually rise slightly and this will impact the total cost of your mortgage. Start planning a few months before your lock-in period ends. Research and compare solutions; a loan comparison website like Lendingpot is perfect for this, where, in a single place, you can compare and contrast all the different options.
Refinancing approval and disbursement take time, so starting early ensures a seamless transition once the lock-in period expires. Refinancing before that will incur a penalty fee, which can cost up to 1.5% of your outstanding mortgage.
A small difference in interest rates, as small as 0.1% to 0.5%, can result in a significant amount of savings on your overall mortgage payment. In fact, if the total cost-benefit analysis works in your favour, refinancing can still be worth it even if you have to pay an early repayment penalty.
For example, let’s say you have a S$500,000 mortgage with 20 years remaining at an interest rate of 3.5% p.a. Your monthly repayment would be approximately S$2,900.
If you refinance to a new loan at 3.0% p.a., your new monthly repayment drops to S$2,773, saving you S$30,435 over 20 years. Even if you have to pay an early repayment penalty of 1.5% (S$7,500), the long-term savings still outweigh the costs.
Pro tip: Look out for special mortgage promotions, such as Lendingpot’s cashback offer of up to $10,000, which will help offset refinancing costs.
Floating mortgage rates in Singapore are usually pegged to SORA (Singapore Overnight Rate Average), overseen by the Monetary Authority of Singapore. Many factors influence SORA, including domestic and global trade and general economic conditions. A decline in SORA rates can cause mortgage rates to fall as well.
Refinancing your mortgage after a rate cut could result in significant savings on your mortgage. We recommend staying informed about recent and upcoming rate cuts to take advantage of favourable refinancing opportunities when they emerge.
Research, compare, and consult financial experts before applying—doing so can help you secure competitive rates and achieve significant long-term savings. We also recommend maintaining a good credit record to improve your chances of qualifying for better mortgage terms and lower interest rates.
Register today with Lendingpot to gain access to multiple refinancing providers, including some of Singapore’s leading banks. If you have questions, our mortgage experts are happy to provide any information you might need or to help you take that first step toward a better, more cost-effective home loan.
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