The idea that too much effort is needed to refinance a HDB loan in Singapore is untrue. The truth is refinancing doesn’t have to take too much of your time, especially with online services nowadays.
To refinance a HDB loan, you need to compare home loan interest rates, prepare the needed documents, go through the valuation test, choose the best law firm, and then adjust the CPF contribution.
How to refinance a HDB loan is a primary issue you should worry about for your property. However, we shall discuss other related areas to understand better. For instance:
Before switching from a HDB loan to a bank loan, you need to consider several factors.
Let’s look at the table below to break down the factors before we get deeper into them.
|Policy||Ratio Or Limit|
|Mortgage Servicing Ratio (MSR)||30%|
|Total Debt Servicing Ratio (TDSR)||55%|
|Loan-to-Value (LTV) limit||At least 75% for banks|
Here is a breakdown of the eligibility criteria:
Before we can even understand how to refinance HDB loan, let’s understand the eligibility criteria for refinancing.
The mortgage servicing ratio is part of your total monthly salary, which would pay all your property loans, including the current one you’re applying for. MSR can’t be more than 30% of your total monthly salary.
TDSR is part of your monthly salary that will pay all your monthly loans, including all property loans and the current loan you are applying for. The TDSR limit is currently under 55% of your total monthly salary.
The loan-to-value limit is what your bank uses when you’re switching over. It means that if you’re yet at repaying at least 25% of the purchase cost or valuation (depending on which is lower) of your property, you’re likely to add up more CPF or cash so to drive it up to the current LTV, which is about 75%.
Other refinancing criteria are:
The minimum salary depends on how much you borrow and whether you take the loan alone or co-joint.
Note that once you’re switched from a HDB to a bank loan, you can’t switch back, so ensure you understand your choice thoroughly.
You can choose to refinance a HDB loan for several reasons. Here is a list of some of the reasons;
The most significant advantage of a HDB loan is its stable rates. Currently, it’s 2.6%, which you get by using +0.1% of the standard account rate of CPF. This has remained this way for many years.
The interest rates for a HDB loan remain at 2.6% yearly, which is very convenient for most people. However, compared to a bank loan, it’s considered high as banks have had their interest rates at under 2% for the past several years.
The difference can be just 1%, but it increases with time. This is the main reason why you should be considering switching from HDB to a bank loan.
The earlier you do it, the more chances of saving money you have. The lower the interest, the greater the amount of your monthly installment repayments will end up paying for your principal loan amount.
To lower your refinancing cost, banks often offer you incentives so you can refinance with them. For instance, banks may propose taking care of your legal charges and the valuation obtained from refinancing.
All these are meant to be returned when you release your loan or refinance with another bank within a specific time, usually three years.
For example, if your valuation amount is $150 and the legal charges are $1,500, your bank can offer you a $1,650 stipend to refinance them. This helps more with your refinancing amounts.
This, though, is different with some banks that determine their stipends according to the percentage of your whole loan amount, so you can still have to raise some of the money by yourself.
Here are steps on how to refinance HDB loan to a bank loan in Singapore:
Before you decide on refinancing to a bank, ensure you’ve done your due diligence on the loan packages that are available in the market.
You should compare the loan interests from several banks. Also, look at each bank’s incentives before settling on one.
This step can be overwhelming, so ensure you speak to a professional advisor early enough. They will help you decide the best loan for your needs by explaining interest rates, terms, charges, and loan repayment periods.
After deciding on which bank is best, the next thing is to prepare the documents you’ll need for your application to the bank. Here is a list of the documents:
Before a bank can approve your refinancing application, they should understand the value of your property. For this, they need a valuation assessment of your property so that the bank can select a valuer to determine the value.
The valuer gets to you and creates the appropriate day for visiting your property for a valuation report. You can even get a copy of the valuation report through mail.
You should have a law firm that handles your paperwork for refinancing your HDB loan to a bank loan. Also, ensure you select a law firm in the bank panel.
The law firm can charge anywhere between $1,500 to $2,000. They’re responsible for all the conveyance processes and paperwork for refinancing your property.
If you’re considering having your savings from CPF for your monthly payments, you should adjust the cost being paid. Your lawyer should help you with this process and also Home Protection Scheme (HPS).
Typically, it takes around three months to finish the refinancing process. The three months are, though, very worth it compared to how much you can save from refinancing your HDB loan to a bank loan.
You mostly save on interest because you can negotiate lower interest rates according to the loan market. Also, you can get incentives from banks that offer legal stipends when you refinance your loan.
Now that you’ve understood how to refinance HDB loan the different interest rates, now you can take note of other essential factors. Here are the common ones.
If you don’t redeem your loan on the reset dates, you risk fines ranging between 0.5% to 2% of the loan you’ve redeemed.
Refinancing your HDB loan to a bank loan might be the best solution for your financial situation. Ensure you compare different loan packages, and choose a trusted law firm and a bank with more stipends to favour you.
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