Don’t miss these considerations before you decide to refinance with another bank or reprice your home loan.

Refinancing home loans can be tricky if you’re not fully aware of all the considerations. Furthermore, home loans are also getting more expensive as interest rates are expected to increase. That’s why this article is here to help. We’ve put together a couple of things you need to bear in mind before you decide to refinance with another bank or reprice your home loan.

1. Tangible benefits

You should consider refinancing if there are tangible benefits such as interest savings or an additional facility for investment purposes.

Here is an example of a $500,000 loan outstanding with a remaining tenure of 25 years against a current 2Y Fixed Rate package assuming no further interest rate changes in the next 3 years. The interest savings is $1,940 over 3 years which may not be sufficient to cover the cost of moving the loan.

For the same loan size over the same tenure, the interest savings is proportionate, i.e. for every $100,000 loan, the interest savings is $388 over 3 years in this example.

$500,000 loan 25 years	Existing home loan package		Potential package		Interest savings (full year)
	% p.a.	Annual Interest	% p.a.	Annual Interest
Year 2018	2.00%	$9,858	1.85%	$9,116	$742
Year 2019	2.00%	$9,543	1.85%	$8,819	$724
Year 2020	2.00%	$9,223	1.90%	$8,749	$474
Interest savings on Year 1 to Year 3 for loan of $500, 000, 25 years tenure					$1,940
Interest savings on Year 1 to Year 3 for every $100, 000, 25 years tenure					$388

2. Penalty charges for loans redeemed within lock-in period

Some home loan packages come with lock-in periods and penalty charges. In the market, the lock-in period for a home loan is typically 2 or 3 years. So if the existing home loan is still within a lock-in period, there will be penalty charges for redeeming the loan early. In this scenario, customers should only refinance their loan if the savings from the reduced commitment is greater than the penalty charges.

After the lock-in period, you can choose to refinance to another bank or restructure the loan with your current bank.

3. Subsidy clawback

If your current bank has provided subsidies such as legal or valuation subsidies, you will have to pay back these subsidies when the loan is redeemed within the clawback period. The clawback period is typically 3 years from the loan disbursement date.

4. Refinancing cost

You will need to pay legal and valuation fee when you move your loan to another bank. Most banks provide subsidies or often called cash rewards to defray the cost of refinancing but this may not be sufficient to cover the entire cost of refinancing. The cost for refinancing includes legal fee and valuation fee.

5. Holistic view that goes beyond just pricing

As a home loan is a long term commitment, you should look at the overall package to see which best meets your needs, including advisory service from the bank.

In general, you should review your housing loan once every few years to see if it would be more advantageous to continue with your existing package, especially so after your lock-in period. It is also advisable to ask your bank for restructuring options and save the hassle of reapplying for a loan with another bank.