How To Refinance A HDB Loan In Singapore
Homeowners in Singapore often start their journey as first-time buyers by taking an HDB housing loan to finance their purchase of an HDB flat.
The convenience of borrowing up to 85% of the valuation or transacted price and a competitive interest rate of 2.6% makes HDB loans a popular option. However, after a few years, many homeowners want to explore options for refinancing their loan to take advantage of lower interest rates offered by banks.
If you’re in this situation and looking to switch your HDB loan to a bank loan, keep reading to find out how to refinance HDB loan in Singapore and what you need to know about eligibility requirements, why you should refinance, and how long it takes.
Get ready to discover all you need to know about how to refinance HDB loan in Singapore.
Switching From HDB Loan To Bank Loan
Switching from an HDB loan to a bank loan is a popular choice among homeowners in Singapore. This process is known as refinancing and involves taking out a new loan to pay off the existing HDB loan.
Refinancing can be a smart financial move as it allows homeowners to enjoy the benefits of a lower interest rate, longer loan tenure and access to a wider range of loan packages.
By refinancing a bank loan, homeowners can save thousands of dollars in interest payments over the life of the loan.
If you’re considering how to refinance HDB loan, it’s important to understand the eligibility requirements and the steps involved in the process.
When considering a HDB loan refinance in Singapore, three key eligibility requirements must be met: the Maximum Servicing Ratio (MSR), Total Debt Servicing Ratio (TDSR), and Loan-to-Value (LTV) ratio.
- Maximum Servicing Ratio (MSR) measures the proportion of your income towards repaying loans. In Singapore, the MSR is set at 30% by the Monetary Authority of Singapore (MAS). This means that your monthly debt obligations, including your mortgage payments, cannot exceed 30% of your monthly income.
- Total Debt Servicing Ratio (TDSR) considers an individual’s debt obligations, including mortgages, credit cards, and personal loans. The TDSR is set at 55% by the MAS, meaning that your total debt obligations cannot exceed 55% of your monthly income.
- Loan-to-value (LTV) ratio measures how much you’re borrowing compared to the value of the property you’re using as collateral. For example, the LTV for HDB loans refinancing in Singapore is capped at 80%. This means you can only borrow up to 80% of the property’s value for the refinance.
Here is a summary of the eligibility requirements:
|MSR||30% of borrower's monthly income used to repay housing loans|
|TDSR||55% of borrower's gross monthly income used to service all debts|
|LTV||80% of property value as loan amount|
Why You Should Refinance HDB Loan
Being a homeowner in Singapore, you may consider refinancing your HDB loan for several reasons, from reducing monthly mortgage payments to taking advantage of lower interest rates offered by banks.
In addition, refinancing your HDB loan can potentially help you save thousands of dollars over the life of the loan, making it a smart financial decision. If you are in the middle of your decision-making on when and how to refinance HDB loan, the following reasons might help:
1. Lower Interest Rates
One of the main reasons homeowners choose to refinance their HDB loan is to take advantage of lower interest rates offered by banks.
Banks often offer lower interest rates than those offered by HDB, allowing homeowners to save money on their monthly mortgage payments. Refinancing to a bank loan also offers greater flexibility in choosing the loan tenure and payment options.
2. Consolidate Debt
Refinancing an HDB loan also allows homeowners to consolidate other debts, such as credit card bills, personal loans, and car loans, into a single monthly payment. By consolidating debt, homeowners can lower their monthly payments and reduce their interest over time.
3. Financial Flexibility
Refinancing an HDB loan provides greater financial flexibility for homeowners. By choosing a flexible loan tenure, homeowners can adjust the length of their loan to better suit their financial needs and goals.
In addition, refinancing a bank loan allows for more flexible payment options, such as making additional principal payments or skipping payments, which can help homeowners better manage their finances.
4. Bank Incentives
Banks often offer incentives and special promotions to attract new customers. You may be eligible for these incentives when you refinance your HDB loan to a bank loan.
Some incentives banks offer includes lower interest rates, waived processing fees, and cashback offers. It is always advisable to compare different bank offers and choose the one that best suits your needs.
How To Refinance HDB Loan To Bank Loan
1. Compare Loan Packages
When considering refinancing an HDB loan to a bank loan, it’s essential to research and compare available loan packages.
Look at interest rates, repayment terms, loan tenures, and any incentives the banks offer. Speaking with the mortgage partners at Pinnacle Estate Agency can simplify the process and help you choose the best loan package to meet your needs.
2. Prepare Necessary Documentation
When you’ve chosen the bank loan that best suits your needs, it’s time to gather the necessary documentation. To ensure a smooth application process, make sure you have the following documents ready:
- Your NRIC
- Details of your HDB flat from the MyHDBPage
- HDB financial information from the MyHDBPage
- Outstanding loan statement from the MyHDBPage
- CPF Property Withdrawal Statement from your CPF account
- Notice of Assessment from the IRAS MyTax Portal
- Last 12 months’ CPF transactions from your CPF account
- Three months of payslips or an employment contract
- If applicable, your Stamp Certificate and Tenancy Agreement for rental income
3. Valuation Assessment
Before the bank approves your refinancing application, they will conduct a valuation assessment to determine the worth of your property. Then, a licensed valuer will visit your property and send you a report through the mail.
4. Choose A Law Firm
A law firm is required to handle the legalities of refinancing your HDB loan to a bank loan. Choose a law firm from the bank’s panel and expect to pay legal fees ranging from $1,500 to $2,000. In addition, the law firm will handle the conveyance and all necessary paperwork.
5. Adjust CPF Contributions
If you plan on using your CPF savings for monthly payments, you will need to adjust the contribution amount with the help of your lawyer. They can assist with lodging the monthly CPF repayment amount and Home Protection Scheme (HPS).
How Long Does Refinancing HDB Loan Take?
The time frame for refinancing an HDB loan to a bank loan can vary, but typically it takes about 1 to 2 months from start to finish. Several steps are involved in the process, such as organising and submitting the necessary documentation, having a valuation assessment done, selecting a law firm, and adjusting your CPF contribution if necessary. The time required for each step can vary, but if everything is in order, the process can be completed within a couple of months.
What To Take Note Of
- Consider the fees involved, including legal, valuation, and stamp duty fees.
- Check if your current HDB loan has any lock-in period or penalties for early repayment.
- Assess the interest rate offered by the new bank loan and compare it to the current HDB loan rate.
- Consider the loan tenure and monthly repayment amount before making a decision.
- Make sure to compare various banks and their refinancing packages before choosing.
- Read the terms and conditions of the loan agreement carefully before signing.
- It’s essential to clearly understand how refinancing an HDB loan would impact your financial situation.
Ready To Refinance Your HDB Loan?
If you’re considering refinancing your HDB loan, it’s important to research and understands the eligibility requirements, process, and benefits.
Then, if you’re ready to take the next step and secure your financial future, Horison Credit is here to help.