Disclaimer (Block 1): This article is for educational purposes only and is intended to assist CEA-registered property agents in understanding regulatory frameworks. It does not constitute financial, tax, or legal advice. LEVR's calculations are indicative only. Always verify rates and eligibility with your bank, HDB, CPF Board, or a licensed financial advisor before advising clients.
What Is Mortgage Refinancing?
Mortgage refinancing is the process of replacing an existing home loan with a new loan — either with the same bank (repricing) or a different bank (refinancing). The motivation is usually to obtain a lower interest rate, change from a floating-rate to a fixed-rate package (or vice versa), or adjust the loan tenure.
In Singapore, refinancing is common at the end of a lock-in period, when the initial fixed or promotional rate expires and the loan reverts to a higher floating rate. Borrowers who do not actively refinance often remain on the bank's board rate (the standard variable rate), which is typically higher than competitive market rates.
Lock-In Periods and Break Costs
Most home loan packages in Singapore have a lock-in period — typically 2 to 3 years from the loan drawdown date (or from the date of the latest repricing). During the lock-in period, the borrower cannot refinance or fully redeem the loan without paying a break cost(also called an early redemption penalty).
The break cost is typically 1.5% of the outstanding loan amount, though it varies by bank and package. On a S$900,000 outstanding loan, a 1.5% break cost is S$13,500. This is a cash cost that must be weighed against the projected interest saving from refinancing.
| Scenario | Outstanding Loan | Break Cost (1.5%) | Monthly Saving (e.g., 0.5% rate cut) | Break-even (months) |
|---|---|---|---|---|
| S$600K loan | S$600,000 | S$9,000 | ~S$250/month | ~36 months |
| S$900K loan | S$900,000 | S$13,500 | ~S$375/month | ~36 months |
| S$1.2M loan | S$1,200,000 | S$18,000 | ~S$500/month | ~36 months |
The break-even period assumes the borrower plans to hold the property for longer than the break-even duration after refinancing. If the borrower plans to sell within 2–3 years, paying a break cost to refinance is unlikely to be financially rational.
TDSR Re-Assessment on Refinancing
When a borrower refinances with a new bank, the new bank must conduct a fresh TDSR assessment as if the borrower were applying for a new loan. This means all financial obligations — the new mortgage at the stress test rate, car loans, personal loans, credit card balances, and other income haircuts — are re-assessed against the borrower's current income.
A borrower whose financial position has deteriorated since the original loan (e.g., new car loan, lower income, additional dependent obligations) may fail the TDSR re-assessment and be unable to refinance to the new bank — even if they have been servicing the existing loan without issues.
When to Refinance
The right time to refinance is in the last 3 months of the lock-in period. Most banks require 3 months' written notice before a loan can be redeemed or ported. Borrowers who wait until the lock-in expires without giving notice may be committed to another 3 months on the existing (higher) rate while the new loan is being processed.
The refinancing process with a new bank typically takes 4–8 weeks:
- Obtain Letter of Offer (LOO) from new bank — requires income documents, property details
- Accept LOO and engage solicitors (or use bank's panel solicitor)
- New bank obtains valuation report
- Solicitor prepares new mortgage documents and discharges existing mortgage
- Loan drawdown and simultaneous redemption of existing loan
Fixed vs Floating Rate Packages
Singapore home loans are typically priced as:
- Fixed rate — interest rate fixed for 2–3 years (the lock-in period). Provides payment certainty but is typically slightly higher than the floating rate at the time of pricing.
- SORA-pegged floating rate — interest rate = compounded SORA (Singapore Overnight Rate Average) + a spread set by the bank. SORA is the MAS benchmark rate replacing SIBOR from 2024. Floating rates move with market conditions.
- Board rate (FHR/internal rate) — bank's internal rate, which the bank can adjust at its discretion. Typically less transparent than SORA. Common in older loan packages.
At refinancing, borrowers choose between certainty (fixed) and the possibility of lower rates if SORA falls (floating). The choice depends on the borrower's risk tolerance and interest rate outlook.
Refinancing and Property Valuation Risk
When refinancing with a new bank, the bank commissions a fresh property valuation. If the property valuation has declined since the original purchase, the new bank's maximum loan (based on LTV × valuation) may be lower than the existing outstanding loan balance. The borrower may need to make a partial cash redemption to bring the loan down to the new LTV limit before the refinancing can proceed.
This is a particular risk for borrowers who purchased at the peak of the market or who have seen their property type depreciate (e.g., older leasehold properties approaching 60 years remaining lease, where the LTV ceiling also falls due to lease tenure restrictions).
Frequently Asked Questions
Q: Can a borrower refinance an HDB loan to a bank loan?
A: Yes. HDB concessionary loan borrowers can refinance to a bank loan at any time. However, once a borrower switches from HDB loan to a bank loan, they cannot switch back to an HDB loan. The HDB concessionary rate (currently 2.6% p.a.) is typically more stable than bank rates but may be higher or lower depending on market conditions at the time of refinancing.
Q: Does refinancing affect ABSD or SSD?
A: No. Refinancing is a change in the loan, not a change in property ownership. ABSD and SSD are transaction-based taxes that are assessed at the point of purchase (ABSD) or sale (SSD). Refinancing has no bearing on ABSD or SSD obligations.
Q: Can a borrower take cash out when refinancing?
A: Cash-out refinancing (increasing the loan beyond the outstanding balance to extract equity) is possible in Singapore subject to LTV limits and a full TDSR assessment. The TDSR refinancing exemption does not apply to cash-out refinancing — the borrower must pass the full TDSR test. Cash-out refinancing is less common in Singapore compared to some other markets.
Q: How does refinancing work for joint borrowers if one co-borrower wants to be removed?
A: Removing a co-borrower from an existing mortgage requires the remaining borrower to qualify for the full loan on their own — under a full TDSR re-assessment. This is effectively a new loan application. If the remaining borrower cannot support the full TDSR on their income alone, the removal cannot proceed without a partial loan redemption or a new co-borrower being added.
Disclaimer (Block 3): LEVR's calculator outputs are estimates based on inputs provided and current regulatory parameters as known at time of publication. They are not a guarantee of borrowing capacity, stamp duty liability, or CPF eligibility. Regulatory thresholds and rates may change. Always verify with IRAS, your bank, or a licensed financial advisor before making financial decisions.