Refinancing Vs Re-pricing

REFINANCING VS RE-PRICING

Refinancing is when you cross over to another bank to enjoy lower interst rates for your mortgage. Usually customers would opt for refinancing when the lock-in period with their current bank is about to expire.Banks typically approve of refinancing if the outstanding loan amount is more than $200k. This is because if the outstanding loan amount is too small, it might not be worth refinancing due to the charges that are involved.
- Prepayment Penalty (1% - 2% of the outstanding loan) if the full redemption is within the lock in period
- Redemption Fee of between $300 to $500
- Claw back charges such as the legal subsidies, valuation fees, fire insurance upon taking up the initial housing loan
There are bank packages offered to subsidise the penalty charges to bring over the loan with their bank but usually it is only 0.5% - 0.7% of the remaining loan amount or maximum up to $2000 or $2500 whichever is lower.
Therefore, it is important for you to consider the net savings to see if it is worth the effort to make the change.
Re-pricing is when you change to a more attractive loan package offered by your current bank/financial institution.
Banks typically offer better rates for their existing customers and most times, would prefer them to re-price and be locked in to the new package. You should also bear in mind that certain banks charge conversion fee for re-pricing which could cost up to $500 (i.e DBS/POSB).
So to choose between refinancing and re-pricing, you would have to consider the following factors:
1. Are you still locked in to your current bank? If so, how long more til the lock-in period is over?
2. If you are locked in for another 2-3months, it is preferred for you to send a notice to your existing banker 3 months prior to refinancing
3. Are the interest rates offered by other banks much lower than the rates you are currently paying every month? Calculate using our SmartLoans wizard tool to help with your decision-making
4. Calculate your total savings before opting to refinance and this includes the penalty charges, legal fees etc.
TIP: The total savings may outweigh the initial cost of refinancing so if you have a big outstanding loan amount [more than $500k], it would be more beneficial for you to refinance to a lower interest rate package for long-term savings.