Refinancing Your Home Loan: When It Makes Sense and When It Doesn’t

With interest rates and the property market changing all the time, many homeowners in Singapore often ask whether they should refinance their existing home loans. Refinancing simply means switching your current mortgage to another loan, either with the same bank or a different one, usually to enjoy a better rate or more suitable terms. Done at the right time, it can save you a significant amount in interest.

Why You Should Consider Refinancing

Lower interest rates
If market rates have fallen since you took up your loan, refinancing could help you reduce your monthly repayments. Even a small drop in rates can make a big difference over the years, helping you save thousands of dollars in interest.

More stable or flexible repayment options
You might want to move from a floating rate to a fixed rate if you prefer more certainty in your monthly payments. On the other hand, if interest rates are expected to drop, switching to a floating rate may help you take advantage of future savings.

Better cash flow
Refinancing allows you to extend your loan tenure and lower your monthly instalments. This could free up cash for other financial goals or unexpected expenses.

Consolidate your debts
If you have multiple loans, refinancing could help you combine them into a single repayment, making it easier to manage your finances.

When You Should Refinance

When your lock-in period is ending
This is usually the best time to explore refinancing options. Refinancing during your lock-in period could lead to penalties, so most people start reviewing offers about six months before the period ends.

When there’s a meaningful rate difference
As a guide, refinancing is worth considering if you can get at least 0.5% lower than your current interest rate, and you plan to stay in your property for a few more years.

When you need more flexibility
Some new packages may allow you to make partial repayments or enjoy features that better fit your current lifestyle or financial situation.

When You Should Not Refinance

If you’re currently unemployed or your income has dropped
Banks will reassess your financial standing when you refinance. If your income is unstable, you may not qualify for a good rate, or you may not get approved at all.

If your outstanding loan amount is very small
When your remaining loan is under about $100,000, the cost of legal and valuation fees may outweigh the savings you get from refinancing.

If you’re still within your lock-in period
The penalty for refinancing early can easily cancel out any potential benefit, so it’s usually better to wait.

If you plan to sell your property soon
If you expect to sell your home in the near future, refinancing may not make financial sense, as you may not stay long enough to enjoy the savings.

Conclusion

Refinancing can be a smart way to reduce your mortgage costs, but it isn’t suitable for everyone. The key is to review your loan regularly and compare your options once your lock-in period is up.

At that stage, it’s always worthwhile to speak with a mortgage broker. We can help you assess the latest rates and promotions across different banks and advise whether a switch could benefit you. A short conversation could end up saving you tens of thousands of dollars in interest over time.