Want to refinance your HDB loan? You’re not alone.Many Singaporeans want to refinance their HDB loans as well, but are still unsure if they should do so or not.
If you need to refinance a HDB loan in Singapore, it’s important to understand the process and requirements. Before you begin, you must consider your current financial situation and whether refinancing is the best option for you.
We’ll see the reasons why you should or shouldn’t refinance your HDB loan. For starters, let’s discuss the reasons why you should refinance your HDB loan.
Switching From HDB Loan To Bank Loan
When thinking about refinancing your HDB loan, there are considerations to make. Here are what to consider when thinking about refinancing your housing loan from HDB to bank loan.
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Before getting into packages and different interest rates, first, it’s important to check on credibility. Here are the eligibility requirements:
1. Mortgage Servicing Ratio (MSR)
The Mortgage Servicing Ratio (MSR) refers to the borrower’s gross monthly income portion going into paying all property loans plus the loan applied for. Currently, MSR is capped at 30% of the gross monthly income of a borrower.
2. Total Debt Servicing Ratio (TDSR)
The Total Debt Servicing Ratio better abbreviated as TDSR is the borrower’s gross monthly income portion repaying monthly debt obligations that include the loan being applied for and property loans. The Total Debt Servicing Ratio limit is set at 55% and below the gross monthly income of a borrower.
3. Loan-to-Value (LTV)
The bank’s Loan-to-Value of 75% applies when you switch over. So, in case your loan is not repaid up to 25% of the home purchase price, chances are high you’ll need to top-up some money or CPF for it to be in line with LTV.
Why You Should Refinance HDB Loan
Are you thinking about why you should refinance your HDB loan? Well, there’s no specific answer but having these factors in mind will help you make a sound decision.
1. HDB Rates Are More Stable However, Banks Provides Lower Interest Rates
Some of the benefits of having an HDB loan refinance is the stable interest rate currently at 2.6%. The rate is pegged on the CPF Ordinary Account rate which is at +0.1% and has been constant for over 10 years.
Even though some people like it, 2.6% is steep when compared with banks’ interest rates mostly under 2% in the past years.
Though the difference is small at over 1%, it adds up over the years. For this reason, homeowners refinance the HDB loans as soon as possible without cash outlay with the main reason being savings.
2. Availability Of Home Refinancing Perks, Promotions, And Incentives
To minimize costs on customers when refinancing HDB loans, banks tend to offer perks besides the low-interest rates.
For example, banks offer their customers subsidies subjected to the clawback clause to cover all incurred fees when refinancing an HDB loan, such as legal and valuation fees.
How To Refinance HDB Loan To Bank Loan
When you need to refinance an HDB loan to a bank loan, here’s the procedure to take:
1. Compare The Loan Packages
The first step when you want to refinance your HDB loan is to do due diligence by assessing the different loan packages available on the market. It can be comparing interest rates given by the banks, and also incentives offered to help you gauge the better option.
Many people usually get overwhelmed with the evaluation process, so it’s better to consult a CreditMaster mortgage expert to guide you on the best package for you.
They will explain all the complexities of the refinancing journey and advise on the best home loan to meet your needs according to the interest rates, repayment terms, fees, and loan tenures.
2. Organize Required Documentation Before Tendering An Application
Once you settle on the best bank to work with, you’ll need to provide the bank with these documents for application:
- Your NRIC
- Comprehensive information about your HDB flat, which is available at the MyHDBPage
- Your HDB financial information, also available from the MyHDBPage
- Most recent outstanding loan statement
- Recent Central Provident Fund (CPF) Property Withdrawal Statement available on your CPF account
- Recent Notice of Assessment from the Inland Revenue Authority of Singapore, available on the IRAS MyTax Portal
- The last 12 months’ history of your CPF transactions
- Your last three months’ payslips
- In case you’ve been at your job for less than three months, you’ll need to provide your employment contract
- Your Stamp Certificate and Tenancy Agreement if you have rental income
3. Valuation Assessment
Before the refinancing application gets approved by the bank, they will want to know your property’s worth.
This requires the bank to appoint a licensed valuer to conduct the valuation assessment to know the value of the property. Before the process, the valuer will schedule a property visit to make a valuation report which will be mailed to you after the completion of the process.
4. Choose A Preferred Law Firm
You will then have to choose a law firm responsible for handling all legalities of refinancing your HDB to a bank loan. All you’ll have to do is select a law firm that’s within the bank’s panel. Remember to ask this before settling on a law firm.
Besides, ask what the legal fee includes, for example, if it covers the mortgage duty which is usually $500. Be ready to be charged legal fees ranging from $1,500 to $2,000. The law firm will be tasked to handle the conveyance and all property refinancing paperwork.
5. Adjust Your CPF Contribution If Necessary
In any case, if you plan to use your CPF savings to pay the monthly instalments, you’ll need to adjust the amount paid. Your lawyer can help you with this by lodging the CPF repayment amount you need to pay monthly and your Home Protection Scheme (HPS).
How Long Does Refinancing HDB Loan Take?
Refinancing your HDB loan typically takes three months after filing an application. Though many get overwhelmed with the tasks, the better part of it should be undertaken by a lawyer well-conversant with refinancing loans.
And, given the amount you’re bound to save in the long run when refinancing an HDB loan to a bank loan, it’s worth taking the step to file it.
What To Take Note Of
Despite knowing the rate types that apply when you want to refinance an HDB loan, there are other pointers that you should take note of.
Here are the other considerations to note when planning for a smooth transition:
You have to take note of the reference rates. They can be ranging between floating rates pegged to SORA, a Fixed Rate, or internal Board Rates made by each financial institution.
The lock-in period is the amount of time you need to have a mortgage loan with a bank. For most home loans, usually spans from 1 to 3 years, however, the period may be extended to 8 years under special conditions.
In addition, if you decide to redeem the loan before it’s due either by reselling or refinancing the property or by full settlement, you may chalk some pre-payment penalties.
Pre-payment penalties usually come into play during the lock-in period window. The penalty usually ranges from 0.75% to 2% of the pre-paid loan amount.
Interest rates dates are applicable to floating rate packages. As per some banks guidelines, you may only redeem the loan on specific dates like on the loan reset date alone. Failure to redeem on the specific dates, you may be subjected to a 0.5% to 2% penalty of the loan amount redeemed.
In case you prefer to withdraw for loan disbursement, you may have to incur cancellation fees. This is usually applicable when you sign the loan agreement to take up the loan offer and the day your loan is disbursed. The cancellation fee can be between 0.5% to 2% of the total loan amount cancelled.
When refinancing residential or commercial properties, or buying commercial properties, financial institutions do give subsidies to entice buyers into taking home loans. The subsidies available up for grabs include legal fees, valuation fees, and free fire insurance premiums.
From the subsidies discussed above, they usually have a minimum period for the customer to have the loan, failure to which all the subsidies have to be paid back to the bank. The banks do this to ensure they still get the profits despite the outcome of the bargain.
Despite the bank you go for, there are only 3 types of product pricing structures including step-up, step-down, and flat. Step-up structure is where the loan continually gets expensive. Step-down structure on the other hand is where your loan gets cheaper and flat structure means there’s no change with the loan at all.
Most Singaporean banks have the step-up basic structure when operating home loan packages. So make it a routine to visit the bank to discuss loan terms. Most of the times, banks can entice you by wavering the conversion fees but others will still charge a fee. The fee usually ranges between $500 to $5000.
Processing Charges Or Admin Fees
Processing charges better known as admin fees are mostly applicable in commercial and industrial properties when acquired under a corporate organization. These fees may be costly to some extent as you may be required to cough out some few hundred to thousand dollars to cover all the charges and fees.
Know How To Refinance An HDB Loan Today
Refinancing your HDB loan is a great way to save money and pay off your mortgage faster.
You can refinance your HDB loan with a lower interest rate, which means you’ll pay less in monthly instalments. If you have bad credit, refinancing may be your best option for getting out of debt.
To get started with refinancing, you’ll need to find a lender who will work with you and offer competitive rates. CreditMaster’s experts have experience working with borrowers from Singapore and understand how mortgages are structured here.
Contact us at +65 6748 1338 today for guidance on your refinancing option or let us walk you through the HDB loan refinancing journey.