Maximize Your Savings: The Power of Refinancing or Repricing Your Bank Loan

Higher Interest Rates Ahead? It’s Time to Reprice or Refinance Your Home Loan

With rising inflation expected to persist—especially following Trump’s tariffs—interest rates may climb again. If you took up a home loan 2 to 3 years ago, now could be a great time to consider refinancing or repricing (with your current bank) your mortgage. The Cost of forgetting to Refinance or Reprice? Many homeowners opt for fixed rates for the first 2 or 3 years. After that, their loans typically revert to floating rates, which are often higher. For instance, two years ago, fixed rates were around 3.3%. Today, you might get a fixed rate as low as 2.45%.

But if you don’t reprice or refinance, you're likely paying more. After the fixed period, your rate might float to something like 3.61% (based on a 1M compounded rate of 2.36% + a spread of 1.25%), which means you're paying 1.16% more than today’s best fixed rates. On a $500,000 loan, that’s an extra $3,147.24 per year in interest!

Most banks won’t remind you—it’s in their interest if you forget. But I’m here to help you stay on top of it 😊

Repricing vs Refinancing

Repricing (With Your Current Bank):

• Process: Negotiate a new loan package (fixed or floating) with the bank you are already with.

• Costs: Usually avoids significant legal fees but may involve a processing fee (typically around S$500). Sometimes this fee can be negotiated or waived.

• Recommendation: Often simpler and cheaper if the rates offered are competitive with other banks.

Refinancing (Switching to a New Bank):

• Process: Take up a new home loan package with a different bank.

• Costs: Involves engaging a law firm to handle the switch, incurring legal fees (often S$2,000+).

• Incentives: New banks may offer more attractive rates or cashback promotions to offset legal costs. Be aware of 'clawback' clauses tied to cashback – you usually must stay with the new bank for a set period (e.g., 3 years) or repay the cashback amount.

• Recommendation: Think about switching banks if their deal is much better. Calculate if the money you'll save with the new bank is greater than the switching costs (like legal fees), even after you count any cashback they give you. Basically, make sure the savings are worth the effort and expense.

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Key Considerations When Repricing or Refinancing 💡

1. Floating vs Fixed Rate  Fixed Rate: Interest rate stays the exact same for a set period, usually 2 or 3 years.

   Often at a lower rate (currently 2.4%~2.75%) compared to floating.  You know precisely how much your monthly payment will be during that time, making budgeting easier.It might not be the best choice if you strongly believe interest rates will drop significantly soon.

   Floating Rate:Your interest rate can change over time – it goes up or down based on general market interest rates (like SORA in Singapore) plus an extra bit charged by the bank (the "spread"). If market interest rates fall, your monthly payment could become cheaper else if interest rates rise, your monthly payment increases. Consider only if you think rates are to fall significantly soon.

2. Locked in Period & Penalty - Fixed-rate packages usually come with a 2- to 3-year lock-in. If you redeem the loan early, you may face a 1.5% penalty. Planning to sell your home soon? Some banks waive penalties after 12 months if you sell (not to a related party and not part of decoupling/part-purchase). In some cases, my clients have even had the penalty waived within a year if they take up a new home loan with the same bank that’s equal to or more than the outstanding amount.
   

3. Free conversion - In today’s uncertain market, many banks offer a free conversion option after 12 months—even during a 24-month lock-in. That means if rates drop, you can switch to a lower-rate package with your current bank. If rates rise, you simply stay with your existing plan.
   

Bonus Tip for Private Property Owners Aside from saving on interest, you might consider cashing out additional funds during refinancing for personal use or investment.

This can be a smart way to access funds without selling your property. This cash can fund renovations, education, or investments. Since the interest rate is tied to your home loan (e.g., 2.5%), it's cheaper than personal, car loans & credit card.

Let’s say your original loan was $800,000 and it's now reduced to $600,000, while your property value has gone up. You could refinance for $600,000 and cash out an extra $200,000 as a term loan.

For example:

• Cashing out $200,000 at 2.5% interest

• Investing in local bank stocks or S-REITs that pay 5–8% dividends

• At 5%, that’s $5,000/year in returns vs $5,000 interest, giving you a net gain of $2,500/year (excluding capital gains)
  

Taking a cash-out loan increases your total debt and monthly repayments. Ensure you have a solid financial plan, understand the investment risks, and can comfortably manage the higher installments before proceeding.

If you’re planning to refinance your home loan or want to explore better bank loan packages, reach out to me. I can help you find the option that best suits your needs.