Explain how repricing with your own bank differs from refinancing with another bank.
When the lock-in on your home loan ends and you do nothing, the loan moves to the thereafter rate set in your package. This is usually a floating rate with a higher spread. Banks expect many borrowers to stay on it and price it to match. Staying put is the expensive default, so the real choice is between two ways of leaving it: repricing with your own bank or refinancing with another.
Farah and Hakim (an example couple) had been in their home for two years and nine months when their bank wrote to them. Their three-year fixed rate of 2.35% would end in three months. After that, the rate would become SORA plus 1.20%, which is 3.60% in this example. The bank offered to move them to a new package at 2.90% if they replied within two weeks.
Hakim was ready to sign. Farah remembered a point from lesson 5.2, "Fixed, floating and SORA-pegged packages": the bank's offer is the first number, not the only one.
When the lock-in ended, their balance would be about S$387,976 (an example figure), with 22 years left. They were paying S$1,883.50 a month. At 3.60% over the remaining 22 years, that would rise to about S$2,130 a month.
Repricing is switching to a different package with your current bank. The loan stays with the same bank, so there is no new legal work and usually no valuation. The bank sends an offer, you accept it, and the new rate starts. The cost is usually small. Some banks charge a conversion or administrative fee and some waive it. The terms are in your letter of offer and in the repricing offer itself.
A repricing usually comes with a new lock-in and sometimes a new clawback, so read the new terms as carefully as the old ones. Farah and Hakim's offer was 2.90%, with a fee of S$800 (an invented figure) and a new two-year lock-in.
Refinancing is taking a new loan from a different bank and using it to repay the old one. It needs a property valuation and a lawyer to discharge the old mortgage and register the new one. Module 4 covers the TDSR and the MSR. MAS does not apply the TDSR limit when you refinance a home you live in, so check the current rules with MAS before you assume either one applies to your loan. The new bank still decides whether to lend to you, and your income, debts and age all count. If your income has fallen or your debts have risen since you bought, you may not qualify for the same loan.
The costs are legal fees, a valuation fee and any clawback still running on your old package. The new bank may offer to subsidise the legal or valuation fees, and that subsidy usually comes with its own clawback. Refinancing also takes longer than repricing.
Many loan agreements require written notice before you repay the loan, often a few months. If you give less notice, you pay interest in place of notice. Check the notice period in your letter of offer now, not when the lock-in ends.
Another bank offered to refinance Farah and Hakim's loan at 2.60%, fixed for two years, with a two-year lock-in. Their lawyer quoted about S$3,000 and the valuation was about S$500 (both invented figures).
Repricing is cheaper to do. Refinancing often gets a lower rate, because banks compete harder for new customers than for existing ones. Which option wins depends on the size of the rate gap, the costs, and how long you will keep the new package. Lesson 8.2, "Work out the break-even on switching", does the arithmetic.
Collect offers before you need them: from your own bank, from two or three other banks, or through a mortgage broker, who is usually paid by the banks. For each offer, note the rate, the fees, the new lock-in, any clawback, and any subsidy along with its clawback. For a refinancing offer, also add the legal and valuation fees, any clawback left on your old package, the notice period, and whether the new bank would approve the loan. Then take the best competing offer back to your own bank. Banks often improve a repricing offer when shown a lower competing rate.
An HDB loan has no lock-in, so if you have one, this decision can come up any time a bank rate looks attractive. You compare offers the same way, with one difference, explained in lesson 5.1, "HDB loan or bank loan": moving from an HDB loan to a bank loan is one-way. Once you refinance to a bank, the flat cannot go back to an HDB loan, and you take on lock-ins and floating rates for the rest of the loan. Weigh a lower bank rate for two or three years against giving up HDB's steadier rate for twenty years.
Farah and Hakim's bank wrote to them with three months to go. That is roughly the minimum time you need to collect offers and compare them. If you refinance, you also need it to give written notice and complete the legal work before the lock-in ends. Starting earlier costs nothing. Find your lock-in end date and the thereafter rate that will apply after it, then count back at least three months.
In the activity below, write your lock-in end date and the date you will start comparing offers, at least three months before.
Write down your lock-in end date, then the date you will start comparing offers, at least three months before it.
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