Refinancing your HDB loan is a great way to enjoy savings on these loans in Singapore. When you refinance one, you switch from a HDB loan to a bank loan to enjoy lower monthly payments, interest rates, or both. These benefits can only be guaranteed if you know how to refinance HDB loan to bank loan.
The HDB interest rate has been 2.6% for over ten years, but bank loan interests fluctuate. Like many informed new homeowners, you can take advantage of the volatility of these loans at the appropriate time and migrate from a HDB loan to a bank loan to reap the benefits. This article on home loan refinance provides detailed information on how to refinance HDB loans and enjoy substantial savings on these loans at any time.
Switching from HDB loans to bank loans has been a common practice in Singapore for decades due to the strong desire among homeowners to save on costs.
However, consider that costs like legal and valuation fees can be involved when switching over. Also, if you wish to add your spouse as a co-payer, your bank may ask for an administration fee.
Other than that, switching from HDB to bank loans is easy. Unlike bank loans, there’s no lock-in period for HDB loans. You can start the switching-over process whenever you deem it suitable.
What about a partial prepayment penalty? Banks charge about 1.5% of the repaid amount if you repay early or pay more than your approved monthly instalment.
For HDB loans, there is no such penalty, simplifying the process of repaying loans and switching to bank loans further.
Now that you know that refinancing an HDB loan using a bank loan is simple, let’s consider whether you meet the eligibility requirements or what you can do to qualify.
Here is what determines your eligibility for HDB loan refinance:
The Mortgage Servicing Ratio (MSR) is a government-issued restriction that protects borrowers like you from taking out loans they can’t service as required.
MSR is the percentage of the gross income you can use to repay your property loans. Currently, the MSR in Singapore is 30%, meaning you can use up to 30% of your monthly gross income on property loans. You can qualify for mortgage refinancing if your MSR limit allows you to repay the bank loan.
The Total Debt Servicing Ratio is another restriction the government uses to protect borrowers. It refers to the fraction of your monthly gross income you can use to repay your debts. Unlike MSR, this one takes care of all your liabilities.
The present TDSR limit in the country is 55%. You can’t use more than 55% of your gross monthly income to service your loans.
Financial institutions have different LTV limits. The banks’ LTV limit is 75%. When you apply to switch from a HDB to a bank loan, your bank will apply this policy to determine how much money you can get from it.
The HDB LTV limit is currently 80%. In other words, if you bought your flat recently, HDB applied this percentage.
Let’s say your flat was valued at $1,000,000, and you took the maximum of 80% ($800,000) when you purchased it. So, your downpayment was 20% ($200,000).
We can also assume you’ve paid off a total of $ $250,000, including the downpayment.
Now that you are switching over, you must consider whether you’ve complied with your bank’s LTV requirement to reap the cost savings. You’ve paid 25% of your property’s value in this case. Since your bank’s LTV is 75%, you can transfer the 75% loan balance to the bank without any issues.
However, assuming you have not paid the at least 25% of the property’s value. You may need to top up to meet the LTV limit. The same applies if you want to transfer a lower value of the property than 75% to the bank.
You can add more cash or use CPF to qualify for mortgage refinancing.
We’ve discussed the primary HDB loan refinancing eligibility criteria, but we shouldn’t forget about the minimum income criteria. The amount will depend on your lender, how much you’re borrowing, and whether you take up the loan as an individual or have a co-signer.
If you meet all the conditions stated above, you can transfer your current HDB loan to a bank loan of your choice.
After evaluating the eligibility criteria, you might ask whether refinancing your HDB loan is worth it. Some people might think that the requirements are relatively stringent. However, considering the benefits, you can apply if you qualify.
Here are the key reasons you can refinance your HDB loan in Singapore:
A HDB loan offers a stable interest rate. From 1999 to date, the rate has always been 2.6 per annum. You can arrive at this by adding 0.1% to the current CPF’s Ordinary Account rate.
While some borrowers prefer stable interest rates, it can work to your disadvantage when bank rates drop to historically low levels, like in 2021 and a significant part of 2022.
The bank interest rates are rising, but the difference between the HDB loan and bank loan interest rates is relatively small.
Some banks are charging approximately 4% per annum. This change might leave you wondering whether it’s still justified to refinance a HDB loan with a bank loan.
If you are asking whether you can still switch from a HDB loan to a bank loan due to the prevailing changes in the global economy, you can do so depending on the cost and tenure of your loan. Let’s see more on this next.
Some banks offer lucrative incentives to lower switching costs from HDB to bank loans.
Many banks in Singapore currently cover the cost of evaluation and legal fees. If the property valuation costs $200 and the legal fee is $2,000, they can give you a subsidy of $2 200 and other benefits.
Other than banks subsidizing the refinancing cost, they can offer loan tenure that suits you.
In short, you can refinance your HDB loan anytime, provided you see an opportunity to benefit from more favourable bank terms.
Are you ready to find out how to refinance HDB loan to bank loan? Let’s go through the exact steps you should follow below.
Once you are ready to refinance your HDB loan to a bank loan, start by evaluating several available loan packages. Compare the rates that different banks and other financial institutions offer. Go beyond that and compare the various perks and incentives in the market to find the best ones that help you save costs.
After finding the best loan, prepare all the documents you require to apply successfully. Here is the complete list:
Before your bank approves your refinance home loan, it will need to assess your property’s current value. It will likely send a valuer or qualified surveyor to do the work.
The expert will contact you to schedule a visit to the property to asses it and create an up-to-date valuation report. You’ll receive a copy of this report.
Find an experienced lawyer who knows how to refinance HDB loans to handle the complex legalities of switching over. A law firm on your bank’s panel can be your best choice.
Most law firms charge between $1,500 and $2,000 for this service.
If you plan to continue using your CPF savings to repay your monthly instalment, it’s time to adjust your contribution. Your lawyer can help you to do this in a manner that saves a lot of money.
The duration for refinancing HDB loans usually takes between one and three months.
The exact period depends on how prepared you are and the efficiency of your bank and law firm. So, you have some power during the loan comparison time to influence how fast the process takes.
Although HDB mortgage refinancing might appear complex, your lawyer will complete every problematic task for you. Besides, considering how much you can save on your HDB loan, the wait might be worth your time.
Note that there are times when there is no real need to refinance your HDB loan. Singapore bank rates are correlated with US interest rates. So, the best time to refinance your mortgage and enjoy lower rates is when the rates are down. However, you can keep an eye out for similar opportunities when your bank offers attractive incentives.
Don’t forget that you can’t switch back to HDB housing loan once you switch over. You should evaluate your financial situation and needs before taking action.
If you are considering how to refinance HDB loan in Singapore, start the journey by window shopping for the best rates and incentives and then preparing all the necessary documents. After that, get a valuation report and choose a competent law firm to do the complex work for you.