Refinancing your home loan: Here’s what you need to know

By EdgeProp Singapore / Redbrick Mortgage Advisory | April 25, 2018 2:14 PM SGT
Refinancing a loan can help you to save thousands on your mortgage payments, but that is not the case for all loans! Before diving into refinancing, there are a few important conditions and dates that we have to know to ensure we really secure those interest savings.
1) Interest Reset Date
One thing you have to be aware of when refinancing is the Interest Reset Date. This critical date is when the bank reviews and resets their interest rate, which usually happens quarterly. Why is this date important? This is because should you choose to redeem the loan outside of specific reset dates, you’d be subject to a penalty (usually 1.5% of the outstanding loan).

2) Three months’ notice for full repayment
There are 3 main scenarios when you fully repay your loan to the bank
i) When you start a new loan with Bank B, who repays the loan to Bank A
ii) When you fully repay the loan using cash or CPF
iii) When you repay using proceeds you get from selling your property.
Most banks require 3 months’ notice for full repayment of the loan. If you refinance with another bank before this 3-month period, be prepared to pay interest-in-lieu on the remaining period! This may be a problem, especially if you consider the interest reset date.
Say you take a loan with a bank on 15th January, and you want to refinance your loan on 15th April, 3 months later. However, if the bank’s reset date is on 1stApril, you will have to pay a penalty as the interest reset date does not coincide with the date you want to take over the loan.
What about if you refinance the loan on 1st April then? You will then have to pay half a month’s interest-in-lieu as you failed to give 3-months’ notice.
3) Clawback or Reimbursement Period of 3 years
The 2 main costs you will incur during refinancing are legal and valuation fees. To entice you, banks may give you a subsidy, either in the form of cash rebates or they may cover the...