The guide you need to refinance your home, car or other loans in Singapore

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What’s the meaning of refinancing? It is to finance something, typically a home or car or big-ticket items, with another new loan, usually at lower interest rates in order for an individual to save money in the long run throughout the loan tenure.

Refinancing could therefore be a great option and opportunity for borrowers who want to save thousands of dollars.

With interest rates climbing amidst the global economic situation, it may be a good time now to switch over to a new loan for its better terms and rates.

Difference between refinancing and repricing

But first of all, let us unpack the difference between refinancing and repricing. These two words sound nearly identical, but they are not exactly the same.

If you want to refinance your loan, you can switch to a loan from any other bank or licensed moneylender. However, for repricing, you can only switch to another loan from the same bank.

This means that if you were to refinance your loan, you would be able to take your pick from any loan bundles in Singapore, enabling you to choose the loan with the lowest possible interest rate.

However, refinancing does come with higher costs and hassles as compared to repricing.

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Since repricing means that you choose another loan with different terms and rates from within the same bank, the speed of your application can be very fast, and some banks do allow their borrowers to reprice even during the loan’s lock-in period, with repricing fees of $500-$800, which could sometimes be waived.

On the other hand, refinancing would be slightly more cumbersome and costly as you may have to pay up to $2500 of refinancing costs and fees, potentially incur a penalty of 1.5 per cent if you refinanced during your lock-in period, take a few months before eligibility criteria can be checked and paperwork have been taken into effect.

However, this doesn’t mean that refinancing is the worst of the two.

This is because refinancing is suitable for those who do not mind performing their own research to pick out the best loan with the lowest interest rates, so that they can save a larger sum over their tenure. Accordingly, repricing would be more suited to those who prefer a seamless and frill-free process.

Can I refinance any loan?

You may be wondering – can I refinance any loan that I have? For the most part, it is a yes. Most types of loans, especially home loans, car loans, and personal loans, which are also the more common loans that customers choose to take out and refinance, offer refinancing schemes.

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Another method of refinancing to potentially enjoy lower interest rates and therefore savings would also be debt consolidation.

A Debt Consolidation Plan (DCP) is a type of debt refinancing programme that consolidates all of a customer’s unsecured loans and credit cards across all banks with one bank, allowing the customer to make repayments on all his loans and credit facilities at once, usually with a lower overall interest rate.

This allows borrowers to refinance any big purchases, such as homes, cars and other big-ticket items.

However, it is important to note that the Debt Consolidation Plan (DCP) excludes refinancing options for renovation loans, education loan, medical loans, and some other credit facilities.

Why refinance?

Refinancing has its perks and its cons, but the big question is, should you refinance my existing loan, or just stick to your current one? Below, we go through some of the reasons you should be considering for refinancing.

1. Lowered interest rates

You may have taken out your loan a long time ago, especially if it were for your home.

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In the period that has passed us by, say a few months, or even several years, interest rates may have fallen drastically, meaning that nearly all loans on the current market would be offering lower interest rates than your existing package.

If interest rates have fallen since the time you originally financed your home, car or other loans, it may be a good idea to do some research and find out the current market interest rates, in case they have fallen, to your benefit.

When you refinance your loan into another one with lower interest rates, you may be able to combat rising inflation as well, by paying for your long-term loans at lower interest rates.

In general, refinancing could greatly help you to enjoy cheaper loans at lower rates, and enjoy savings in the long run.

2. Reducing your monthly instalments

Unfortunately, it is possible that some refinance their loans not because they want to, but because they need to. In the event of a financial crisis or emergency, for example, a loss or reduction in your income, it is possible that you may not be able to afford your monthly instalments.

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In such a scenario, you would have to find an alternative way to reduce your monthly instalments so that you can continue paying off your mortgage or loan.

If you are able to find another loan which offers lower and more affordable interest rates, that would be the best case scenario.

However, if there are no other loans with lower rates, you may have to consider refinancing to another loan which has a longer tenure and repayment period. With a longer repayment timeline, the amounts you’d have to pay up each month would be reduced.

Since your tenure is extended, it is more likely that your total interest payments would be higher than before. However, it is one method for you to ensure that you are able to afford your monthly instalments.

3. Pay off your debt quicker

When you successfully pay off a loan on a big ticket item, the feeling of accomplishment and peace of mind is like no other, since you’re no longer in debt.

Refinancing your loan to another with a shorter tenure could be one way for you. Loans with shorter tenures tend to have lower total interest payments, which help you to enjoy great savings in the long run.

However, it is also essential to understand that this translates into higher monthly instalments.

For borrowers who can afford it, shorter tenure loans are usually more cost-effective, making them prime choices for refinancing.

Does refinancing help to combat rising mortgage rates?

In light of the current climbing interest rates, many home loans are getting increasingly expensive. Is this a good time to refinance to combat rising mortgage rates?

Home loans are seeing soaring interest rates with banks like DBS, OCBC and UOB all revising their home loan rates upwards. Most of their fixed home loan packages now have much higher rates than previously, while float home loan packages still maintain similar terms.

However, with the volatile global economic conditions, it is very likely that the SORA-pegged float home loan rates would also rise greatly.

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If you are currently on a home loan, should you refinance to a fixed or float home loan to avoid being victimised by the impact of this sharp rise?

One strategy would be the “semi-fixed” strategy, where borrowers seek out fixed home loan packages in order to gain and ensure stability and security amidst all the market volatility and uncertainty.

This helps borrowers who want to have more stabilised and predictable monthly instalments.

Using this strategy, you can refinance from one fixed home loan to another fixed home loan, meaning that you would always get to enjoy predictable repayments and not have your monthly instalments be subject to a float rate, which could rise drastically at any time given the current economic climate of perpetually rising interest rates.

It is important to evaluate your existing home loan. If you are currently still in the lock-in period, or are already enjoying low interest rates, it would not be the best time to refinance.

However, if you are on a float home loan package and would like more security in this volatile market environment, you may consider refinancing to a fixed home loan package now, before the rising interest rates climb even further.

Our top picks

To help you make a better decision, we have compiled all the current mortgage rates for those looking out to refinance their home loans in Singapore.

Whether you want to refinance your home loan or car loan, we have some top picks below for you to browse through, and decide for yourself if you would like to do some refinancing to save you some money.

Best fixed rate home loan

DBS Fixed

Consider this if you are looking to refinance to one of the best home lenders in SG.

The DBS Fixed Home Loan has one of the lowest fixed rates for prospective borrowers and homeowners in the market, with 2.75 per cent first year interest and a lock-in period of two years.

Assuming a $500,000 loan with a tenure of 25 years, this translates to a monthly instalment of $2,307, which is one of the lowest in Singapore.

If you are looking to refinance your existing home loan to one with the cheapest fixed rates and would like some security and stability, this is a home loan worth considering for you.

Cheapest car loan for new cars

OCBC Car Loan

Consider this if you want the cheapest car loan for new cars in Singapore.

  • Interest rate
    • N/A
  • Maximum principal
    • Up to 100 per cent of car price
  • Maximum term
    • Seven years

OCBC Car Loan is the cheapest new car loan in Singapore, with a 2.28 per cent p.a. interest rate.

This makes it an ideal choice if you want to refinance your existing car loan to the cheapest possible one on the market. It also offers flexibility, with tenures ranging from one to seven years, so you can make the best choice for your needs.

Conclusion

Refinancing can be one of the best ways to ensure that you save as much money as possible by going for a loan with a more favourable interest rate.

Borrowers, especially for home loans, usually choose to refinance when the economic climate has substantial changes, causing interest rates to rise and fall quickly.

All in all, refinancing has immense potential to help you enjoy great savings, whilst embarking on your financial opportunities.

This article was first published in ValueChampion.