How To Refinance A HDB Loan In Singapore

Written by Shannon Wong on March 10, 2023

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:

  • When to switch from a HDB loan to a bank loan
  • The eligibility requirements for refinancing
  • How do you do the refinancing
  • How long refinancing takes

Switching From HDB Loan To Bank Loan

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.

PolicyRatio Or Limit
Mortgage Servicing Ratio (MSR)30%
Total Debt Servicing Ratio (TDSR)55%
Loan-to-Value (LTV) limitAt least 75% for banks

Here is a breakdown of the eligibility criteria:

Eligibility Requirements

Before we can even understand how to refinance HDB loan, let’s understand the eligibility criteria for refinancing.

Mortgage Servicing Ratio (MSR)

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.

Total Debt Servicing Ratio (TDSR)

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.

Loan-to-Value (LTV)

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:

  • You need to meet the minimum salary.

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.

Why You Should Refinance HDB Loan

You can choose to refinance a HDB loan for several reasons. Here is a list of some of the reasons;

Better Interest Rates

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.

Bank Incentives

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.

How To Refinance HDB Loan To Bank Loan

Here are steps on how to refinance HDB loan to a bank loan in Singapore:

Compare the Loan Packages Available

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.

Organize the Needed Documents Before Applying

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:

  • Your NRIC
  • Your HDB financial documents
  • Your current Central Provident Fund (CPF) property withdrawal information
  • Details about your HDB flat
  • The current outstanding debt statement
  • Your payslips for the last three months
  • Your CPF transactions for the last 12 months
  • Your employment contract if you’ve only stayed at your job for less than three months
  • Your Notice of Assessment from the Inland Revenue Authority of Singapore
  • Your Stamp Certificate and Tenancy Agreement if you have a rental salary

Valuation Assessment

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.

Choose A Law Firm

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.

Adjust The Contribution to CPF If Required

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).

How Long Does Refinancing HDB Loan Take?

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.

What To Take Note Of

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.

  1. Reference rate. These rates are prone to change in the middle of a fixed rate, floating rates fixed to SORA, or to the internal Board Rates placed on each financial organization.
  2. Prepayment fines. These fines are normally affected on the window of the lock-in period. The penalty can range from 0.75% to 2% of the loan pre-paid.
  3. Lock in periods. They are periods that state the period someone has to stay with a mortgage from a bank. The period can be from one year to three years. However, there are unique situations of up to eight years.
  4. Interest reset dates. These usually are for floating rate packages. Some banks hold on that you can redeem your loan only on certain days, for instance, the reset date of the loan.

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.

  1. Reimbursement clauses. The stipends typically have a minimum time for you to hold on to your loan. You should pay the stipend back to your bank if you don’t. This ensures it’s still beneficial to financial organizations.
  2. Cancellation fees. If you withdraw before your loan is released, you might be required to pay cancellation fees. The fees are applicable from when you agree to the loan offer and when your loan is released.
  3. Pricing structure. Different banks have different pricing structures. There is the step-down, step-up, or flat. Step down is where loans become cheaper. Step up, where the loans continue to be expensive and flat, the loans remain the same.
  4. Processing charges. Processing charges are usually in commercial properties when received from the corporate organization.
  5. Conversion fees. In Singapore, most banks offer loan packages of step-up structure, so you should get back to them to discuss your loan terms. Your bank might entice you by removing your conversion fees. However, the banks that charge this fee can go between $500 and $5,000.

Refinance A HDB Loan To A Bank Loan Today In Singapore

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.

Contact 1AP Capital; we’re a licensed money lender in Singapore with fast approval loans and quick disbursement.

Our loans come with no hidden costs, low interest, and processing fees. Apply for a loan that meets your needs with us. 

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