Personal Finance

How To Refinance A HDB Loan In Singapore

October 23, 2023

Key Takeaways

Refinancing an HDB loan to a bank loan in Singapore requires meeting specific eligibility criteria like Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR). Banks generally offer lower interest rates than HDB’s 2.6%, potentially reducing overall loan costs. Refinancing can include benefits like covering valuation costs and legal fees. However, the process can take up to three months, and once refinanced, you cannot revert to an HDB loan.

Homebuyers take out a HDB loan as their first housing loan to finance their property for numerous reasons. Firstly, taking out a HDB loan allows you to borrow as much as 85% of the purchase price or valuation, which makes it easier to pay the remaining 15% as the downpayment.

Moreover, if you’re financing your first home via a HDB housing loan, you’re likely unaware of other loan options in the market. Or, it may’ve happened that the banks were offering higher interest rates than HDB’s 2.6%.

However, let’s fast forward to when you’re repaying your HDB loan and come across bank loans with significantly lower interest rates to finance your property. If you’re in such a situation and want to switch from a HDB loan to a bank loan, this guide will help you learn how to refinance HDB loan in Singapore.

In addition, you’ll learn the various eligibility criteria for refinancing a HDB loan, when you should consider switching from a HDB to a bank loan, and how long it takes to process a HDB refinancing loan.

Switching From HDB Loan To Bank Loan: Eligibility

To understand if you’re eligible to refinance your HDB loan to a bank loan, you must understand the following factors.

Mortgage Servicing Ratio (MSR)

The Mortgage Servicing Ratio (MSR) is the portion of your gross monthly income used to repay all property loans, including the one you’re applying for. Currently, 30% of the borrower’s gross monthly income in Singapore is the MSR’s upper limit.

Total Debt Servicing Ratio (TDSR)

Total Debt Servicing Ratio (TDSR) is the portion of your gross monthly income used to repay monthly debt obligations, including property loans and the one you’re applying for. In Singapore, the upper limit of TDSR is 55% of the borrower’s gross monthly income.

Loan-To-Value (LTV)

The bank’s loan-to-value (LTV) limit of 75% will automatically apply when you decide to refinance your HDB loan. As a result, if you’ve not paid 25% of your property’s valuation or purchase price, you might have to top-up your Central Provident Fund (CPF) or arrange extra cash to stay in line with the LTV.

For instance, let’s assume your HDB flat cost $500,000, and you took a HDB loan of 80% or $400,000. A few years passed, and you’ve repaid $50,000 to the HDB.

Hence, you can transfer the remaining loan balance to the bank for refinancing. Furthermore, if you’ve not repaid at least 25% of your property’s value to HDB, you’ll still be allowed to refinance your home loan, but only up to the LTV or 75% of the property’s price.

Additional Criteria For Refinancing Home Loan In Singapore

Lastly, before learning how to refinance HDB loans in Singapore, you must know that each bank has its own set of criteria regarding mortgage refinancing. Most banks require you to meet a minimum income criterion, which also depends on how much you want to borrow.

If you meet all the above-mentioned criteria, you can switch from a HDB loan to a bank loan.

Note: Once you’ve refinanced, banks won’t allow you to switch back.

Why Should You Refinance HDB Loan

There’s no definite answer to whether refinancing your HDB loan is the best option, but below are a couple of assured benefits:

Lower Interest Rates

One of the most sought-after advantages of taking out a HDB loan is the stable interest rate. The HDB loan interest rate is 2.6%, which can be calculated using 0.1% of the CPF’s Ordinary Account rate. In addition, this rate hasn’t fluctuated in many years.

Even though a few of you would prefer the accompanied stability, HDB interest rates are now considered higher than the rates banks have been offering in the past few years.

Though the difference isn’t much (1% approximately), it adds up eventually, leaving borrowers no choice except to complete their HDB loans as soon as possible. This will allow you to save a substantial amount of money.

The table below represents how a minor difference in interest rates can compound over time, thus validating the benefit of switching from a HDB loan to a bank loan.

  • Loan Amount: $500,000
  • Loan Tenure: 25 Years
  • HDB Interest Rate: 2.6%
  • Bank Interest Rate: 1.3% (Assumed)
HDB Loan @ 2.6%
Bank Loan @ 1.3%
MonthMonthly InstallmentInterestPrincipal

As shown in the above table, although the difference in monthly installments is $300 only, you’re paying almost double the interest in HDB loans than bank loans. Also, you’re paying an amount closer to the principal while repaying bank loans, but the same doesn’t hold for HDB loans.

Simply put, the lower the interest rate, the more portion of your monthly installment will repay the principal amount.

Bank Incentives And Perks

Banks offer a variety of incentives and perks as a reward for refinancing your HDB loan with them. Usually, these incentives encompass concession on refinancing fees and lower interest rates.

Sometimes, banks cover your valuation cost and legal fees instead of providing incentives and perks. Nonetheless, these benefits are subject to terms and conditions that may only allow you to discharge the loan or refinance with another bank after completing a lock-in period.

If the valuation cost is $200 and the legal fees are $1,000, the bank may give you a $1,200 waiver for refinancing with them. However, a few banks decide on the subsidy based on the loan amount.

Now that you know the eligibility requirements and benefits of refinancing your HDB loan to a bank loan, here’s how to refinance a HDB loan.

How To Refinance HDB Loan To Bank Loan

Follow these steps to switch from aHDB loan to a bank loan:

1. Compare Loan Packages And Mortgage Rates

While refinancing a HDB loan to a bank loan, it’s essential to do your end of the research by collecting and comparing various loan packages in the market.

Although you’ll primarily look at the interest rates different banks offer, remember to enquire about the incentives provided as well.

Scanning hundreds of loan packages and comparing interest rates can be tedious.

Get in touch with experts at GS Credit, who will decode all complexities and recommend loan packages suiting your needs based on factors like fees, repayment terms, and loan tenure.

2. Prepare The Necessary Documents And Apply

Once you’ve selected the right bank and loan package, prepare the documents required for applying.

Below are the documents you must keep handy while refinancing your HDB loan in Singapore.

  • NRIC or passport
  • HDB flat details from MyHDBPage
  • HDB financial information from MyHDBPage
  • Most recent outstanding loan statement from MyHDBPage
  • Most recent CPF Property Withdrawal Statement
  • Notice of Assessment from the IRAS from IRAS myTax Portal
  • CPF transaction history of the last 12 months
  • Salary slips from the last three months
  • Employment contract if you’ve been employed for less than three months
  • Tenancy Agreement and Stamp Certificate if you get any rental income.

3. Value Assessment

Before approving your application for HDB loan refinancing, the bank will send a qualified professional to assess the value of your property. The bank will send this surveyor to ascertain your property’s value in today’s market based on specific parameters such as location, property size, land size, condition, and age of the property.

4. Select A Law Firm

Refinancing a HDB loan to a bank loan involves a series of steps that can be time-consuming. Consequently, instead of handling all the work yourself, you can hire a law firm to engage in the legal obligations.

They can manage the required paperwork and conveyancing and remind you to sign the crucial paperwork from time to time. Additionally, such services come with a fee that depends on the law firm under speculation. You can expect the consultancy costs to be around $1,500.

5. Adjust Your CPF Contributions 

You need to adjust the repayment amount if you use the savings in your CPF account to repay the refinanced bank loan. The law firm you hire will likely help you with this adjustment by registering a CPF repayment amount.

This is all about how to refinance HDB loan in Singapore. Once you follow the above steps and submit your application, you might wonder the time required to complete the refinancing process.

How Long Does It Take To Complete The HDB Loan Refinancing Process?

The HDB loan refinancing process takes approximately a month for a few banks, while it could take up to three months for the rest. Ultimately, the length of the refinancing process depends on the borrower’s preferred bank and loan package.

Nonetheless, even though the entire process seems pretty complicated in theorya, the law firm you hire will handle the complex work. Besides, considering the money you save by switching from a HDB loan to a bank loan, the wait is worth it.

Refinancing A HDB Loan: A Smart Choice, Not A Necessity

At times, there’s no real need to refinance your HDB loan. Whether you should or not depends primarily on the interest rate atmosphere. In a market environment with ever-rising interest rates, it’s only wise to review your current housing loan arrangement.

Granted, refinancing HDB loans in Singapore isn’t an effortless job. You must first acquaint yourself with financial and technical terms, stay in touch with the market, and learn how to refinance HDB loans. But the savings on interest repayments can finance your next vacation.

If you’re planning to refinance your HDB loan, contact GS Credit, one of Singapore’s most trusted and well-reputed licensed money lenders.

It provides best-in-class interest rates with quick approval, minimum paperwork, and little processing time.

Apply for a loan today to refinance your HDB loan and make five-figure savings.

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