Home ownership is one of the biggest financial commitments that most people make in their lifetime.
For many Singaporeans, using a HDB loan to purchase a HDB flat is a popular choice.
Some reasons for this could be because they are first-time homeowners, and are not aware of other financing options out there.
Another reason could be because you pay less in downpayment as you can borrow up to 80% of the loan.
Whatever the case, after some years, you may realise that you’re actually paying more with an HDB loan, and would love to refinance the loan to a bank loan with a lower interest rate.
If this is you right now, and you’re wondering how to refinance HDB loan, you’re in the right place.
As you read on, we’ll explore the steps involved in refinancing a HDB loan in Singapore and the factors to consider when making this important financial decision.
Switching From HDB Loan To Bank Loan
Switching from an HDB loan to a bank loan is a common way to refinance a HDB loan in Singapore.
This is because bank loans often offer more flexible terms and lower interest rates compared to HDB loans. By switching to a bank loan, you may save money on your monthly mortgage payments because of lower interest, and pay off your loan faster.
However, it’s important you consider all the factors carefully when it comes to home loan refinance, such as requirements, interest rate, repayment terms, as well as fees and charges.
We’ll be looking at all these factors in more detail as we proceed.
Why You Should Refinance HDB Loan
There are several reasons you should think of an HDB loan refinance. While there is no direct answer to why you should, the following reasons can help you make an informed decision.
Lower Interest Rate
HDB loan interest rates are stable, and have stayed at 2.6% for a long time – over 10 years. This rate is gotten by a +0.1 addition to the CPF Ordinary Account Rate.
While homeowners may appreciate the stability, the HDB interest rate is higher than what is obtainable from banks out there. Most banks over interest rates lower than 2%.
Yes, 1% doesn’t seem like much in the beginning, but over the years it can come up to a significant amount in interest you could otherwise have saved.
When you switch from an HDB to a bank loan with lower interest, you reduce the amount of money you pay on your monthly mortgage payments. You can use the extra cash for other expenses or investments.
Refinancing Incentives And Promotions
Banks are always offering incentives and promotions to make it easier for homeowners refinancing HDB loans.
For instance, banks may offer to cover the legal and valuation costs involved when you refinance HDB loan to bank loan.
Say you incur legal and valuation costs of $1,500 and $300 respectively, the bank may offer you $1,700 as a subsidy to refinance with them or even the entire amount.
However this may be subject to some conditions.
- The bank might claw the subsidy back if you choose to refinance the loan with another bank within a no-refinance specified period which is usually three years.
- The subsidy amount might be pegged to a percentage of the loan amount you’re looking to refinance. So sometimes, you might still have to pay out-of-pocket for a portion of those fees.
More Flexible Repayment Terms
Refinancing to a bank loan with more flexible repayment terms can allow you to pay off your loan faster and save money on interest charges. For example, you may make additional repayments, or shorten your loan tenure so you can pay off the loan faster.
Change in Financial Circumstances
A change in your financial circumstances, such as a decrease in income or an increase in expenses, may make refinancing to a loan with more affordable repayments reasonable as this can help you manage your finances more effectively.
To determine if you’re eligible for HDB loan refinance, you’d need to consider the following.
- Mortgage Debt Servicing Ratio (MSR)
- Total Debt Servicing Ratio (TDSR)
- Loan-to-value Ratio (LTV)
- Additional refinancing criteria
Mortgage Debt Servicing Ratio (MSR)
The MSR is that percentage of your monthly income that can be used to repay all your home or property loans.
This includes the one you’re applying for. MSR is capped at 30% of your monthly income and calculated dividing your monthly income by your mortgage payments.
If your MSR exceeds the specified limit, you may not be eligible for a home loan refinance.
Total Debt Servicing Ratio (TDSR)
The TDSR refers to that portion of your monthly income that goes into repaying all your debt obligations including the loan you’re applying for, existing mortgage loans, as well as car loans, credit card debts, and personal loans.
The TDSR is capped at 55% of your monthly income.
Loan-To-Value Ratio (LTV)
LTV simply refers to how much you can borrow for your home loan, and how much you have to settle with cash/CPF as the downpayment.
Bank’s have an LTV of 75%, which still applies when you want to refinance your home loan. This means you should have paid 25% of your HDB home purchase price or valuation. Here’s how it works.
Say you purchase a flat for $600,000, and took a HDB loan with an LTV of 80%. You paid your 20% downpayment of $120,000, and over the years, have repaid $30,000 or more.
$120,000 + $30,000 = $150,000. This means you have paid 25% of the loan, and you’re eligible to refinance the full 75% LTV from the bank.
If you haven’t paid up to 25%, you can still refinance up to 75%, however, you may have to pay off the balance out of pocket with cash/CPF.
Additional Refinancing Criteria
Banks may have additional eligibility requirements you need to meet such as minimum monthly income. Keep in mind that this amount can vary depending on whether you’re taking up the loan by yourself or with a cosigner.
Keep in mind that when you switch to a bank loan, you can switch back to a HDB loan.
How To Refinance HDB Loan To Bank Loan
Once you satisfy all the requirements above, you should be able to get a HDB refinancing loan from the bank. Here are four essential steps on how to refinance HDB loan.
1. Do Your Research
Make sure you check out different mortgage refinancing packages from different banks before making your decision. Compare interest rates, perks and incentives offered by the bank.
We understand that doing this research can be cumbersome. If you need help, you can reach out to a HDB loan refinancing expert at Lending Bee.
2. Prepare Your Documents
To apply for a refinancing home loan in Singapore, you’ll need to get your documents prepared. The following are the basic documents you need.
- NRIC or passport
- Details of your HDB flat (get this from the MyHDBPage)
- HDB financial info (same as above)
- Recent statement on your outstanding loan (same as above)
- Latest Inland Revenue Authority of Singapore Notice of Assessment (get this from the IRAS MyTax Portal)
- CPF transaction history for at least 12 months (get this from your CPF account)
- Latest 3 months’ payslips
- Contract of employment if you have had your job for less than 3 months
- Tenancy Agreement and Stamp Certificate if you receive rental income.
3. Get Your Home Valued
The bank will need to know the value of your home before they approve the refinancing application. A valuer from the bank will reach out to you to schedule a time.
They will take into consideration the location, age, and condition of your home for the valuation.
4. Use a Lawyer
Refinancing your HDB loan is not a walk in the park, there are lots of legal technicalities involved. To help reduce stress and avoid making errors, it’s recommended to get a law firm involved.
They can help you with the legal and paperwork, saving you a lot of time. Plus remember, most banks offer a subsidy which includes legal fees. You might end up paying nothing or a little fraction.
What To Take Note Of
When switching from HDB loan to bank loan, here are other important factors to note.
- Fees and Charges
Banks may charge you admin and processing fees. There could also be cancellation fees if you withdraw before disbursement of the loan, or conversion fees to transfer the loan which can be waived.
Banks may offer subsidies to cover legal and valuation costs. Sometimes, this is tied as a percentage to the loan amount or clawed back if you refinance outside of the lock-in period.
- Lock-In Period
This is the number of years that is required before you can refinance somewhere else. This can be two to three years. Transferring the loan to another bank may incur penalties.
- Prepayment penalties
If you prepay the loan especially during the lock-in period, they might charge you prepayment fee on that amount.
There may be other terms and conditions that you may not understand. Your lawyer will explain them to you before you sign the agreement.
How Long Does Refinancing HDB Loan Take?
Refinancing your HDB loan to a bank loan usually takes a month or two. Although this can vary from bank to bank, getting all your documents ready, and engaging the help of your law firm might help speed up the process a little.
Get The Help You Need To Refinance Your HDB Loan
At this point, you have enough information on how to refinance HDB loan. If you need more help, you can reach out to our experts at Lending Bee.
If you need quick loans to have a seamless refinancing process, simply reach out to us, or apply for a personal loan online.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.