Heartland Boy

Seriously Singaporean Financial Literacy

Bank Loans Banking & Insurance

How I Easily Saved Over $14,000 By Refinancing My Home Loan

how-i-easily-save-14000-by-refinancing-my-home-loan

If you missed out on the recent stock rally and are suffering from FOMO hangover, an indirect way to still participate in it is to refinance or reprice your home loan. In March 2020, the US Federal Reserve reduced the benchmark interest rate to between 0% -0.25% to resurrect the flailing US economy. As a result, the borrowing costs for Singapore banks have fallen dramatically as well. Savers would have already experienced this effect since the interest rates for the various flagship savings products had all fallen in tandem. Hoping to exact some measure of revenge, Heartland Boy began to actively monitor the various mortgage packages and deals offered by the financial institutions (‘FI’) during the Circuit Breaker. This month, he finally made the decision to switch out of his HDB loan. Here is the account of how I easily saved over $14,000 in interest expense by refinancing my home loan, with the entire application process taking less than an hour!

Why I Took Up A HDB Loan Initially

When Heartland Boy first collected the keys to his BTO flat, he chose a HDB loan over a bank loan because:

  1. 3M SIBOR was at decade high of ~2% and on an upward trend 
interest-rate-historic-low

Diagram 1: 3M SIBOR peaked at 1Q2019 (Source: Bloomberg, RHB)

  1. HDB loan borrowers can always switch to a bank loan

Given that interest rates were on the ascendancy then as shown in Diagram 1, Heartland Boy preferred the certainty of paying a fixed 2.6% on his home mortgage. Because there is no lock-in period for a HDB loan, it means that he could still switch to a bank loan thereafter. Therefore, because he had first taken a HDB loan, he was perfectly positioned to take advantage of the current low-interest rate environment.

Fix The Parameters To Work With

To decide on the best home loan package to subscribe to, Heartland Boy discussed with Heartland Girl on the parameters to fix:

  • Waiver of penalty/commitment fee due to sale

Right from Day 1, the Heartland Couple’s intention is to sell their 3-bedroom BTO after it reaches its Minimum Occupation Period (‘MOP’). That strategy, undertaken in 2014 during their BTO application, has not waivered. It is also why they spent frugally on their home renovation process. Therefore, it is very important to them that any prepayment of the outstanding loan as a result of a sale of their apartment does not incur any penalty.

  • Maximise the loan tenure

As shown in Diagram 1, with interest rates at decades-low, Heartland Boy’s opinion is that it makes economic sense to use as little CPF Ordinary Account funds as possible to pay for their home mortgage. Any deposits in their OA that have not been used to pay the home loan will be earning 2.5% interest rate. Generally, a home loan is also considered a type of good debt (of course, if you can manage it). He would like to reiterate that this is just his perspective which suits his current household financial circumstances. There would be others who think otherwise and have their own preferred combination of low interest rates, CPF OA, cash balances and sanity.

  • Cash rebate to offset admin fees

When one refinances from one financial institution to another, expenses such as legal and valuation fees will be incurred. On average, this ranges between $1,800 to $2,500. He is looking to the mortgage refinance company to offer some form of incentives such as cash rebate to offset these charges.

Heartland Boy thinks that it is important to decide on the parameters as early as possible it allowed them to sieve through the numerous and ever-changing mortgage packages available in the market.

Bank Loan At 1.5% Fixed Interest Rate For 5 Years

After conducting his own due diligence and comparing the various mortgage packages, Heartland Boy finally settled on a 5-Year Fixed 1.5% package with DBS Bank. Actually, DBS offered various lock-in periods of 2,3 and 5-year at the same fixed rate of 1.5%. After the mortgage consultant took time to explain his queries, Heartland Boy eventually opted for the 5-year package. This is an extremely low rate to lock in for a prolonged period and let’s not forget that interest rates would go back up once the economy eventually recovers. Moreover, since Heartland Boy is planning to sell his house upon MOP, he does not want to deal with the additional factor of rising interest rates influencing his decision-making process.

It took him less than an hour to complete and submit the application forms and supporting documents. On the next day, he received good news that his refinancing application was approved! (thanks to the DBS home advice specialist who was super efficient)

Benefits Of Switching From HDB Loan To Bank Loan

  • Guaranteed Interest Savings of > $14,000 over the next 5 years

As Heartland Boy has explained earlier in his article, the eventual mortgage loan with DBS was based exactly on the parameters that he had discussed with his wife.

refinance-home-loan-savings-heartland-boy

Diagram 2: Interest Savings Between Doing Nothing and Taking Action

No doubt that the loan tenure and loan quantum have changed, rendering an apple-to-apple comparison impossible. However, bear in mind that the decision he faced was between A) Doing Nothing (stay with HDB) and B) Taking Action (switch to bank). To simplify matters even further, he only compares the interest savings between the period from Sep 2020 to Aug 2025. The start time coincides with the time he successfully ports over to the DBS Home Loan and the end time marks the end of the guaranteed 1.5% interest rate. He did not consider the savings in interest expense beyond this period because the interest rate cannot be ascertained now and it is likely that he would have sold his house already. Anyway, using a mortgage calculator online, he obtained the respective amortization schedules to confirm that the interest savings is approximately $14,500. Admin fees are assumed to be offset by DBS’s $2,000 cash rebate.

Such a comparison can be done online for free via PropertyGuru’s Smart Refi. Do give it a try and you will be amazed how much you can save from a refinancing simulation!

  • No commitment fee applicable for partial prepayment

In addition to the waiver of commitment fee/penalty arising from sale of the BTO, this is another flexibility that Heartland Boy really liked about the loan package that he took up. His broker explained that during the 5-year lock-in period, he can prepay the outstanding principal without incurring any commitment fee to the extent that there is still a “minimum” outstanding principal remaining with the bank. Heartland Boy further clarified that this “minimum” could even be as low as $1!

  • A further $50,000 in both Multiplier Accounts earn at least 2.4% interest rates

Heartland Boy and Heartland Girl both have DBS Multiplier Accounts. Heartland Boy had previously shared how crediting just one of their salaries has allowed both of their accounts to enjoy salary crediting. The good news is that home mortgage works the same way since both of them will be jointly servicing the monthly instalments.

home-mortgage-dbs-multiplier-interest-income

Diagram 3: Additional Interest Income From DBS Multiplier

Likewise, if we compare the action of doing nothing and taking action, the Heartland Household would gain additional interest income of $2,400 per annum. Taking up a home mortgage with DBS allows them to unlock a new category (besides credit card and insurance), and with it an additional $50,000 in their respective DBS Multiplier savings accounts easily enjoy at least 2.4% interest p.a. The additional deposits will be transferred from the Citi MaxiGain Savings Account to their DBS Multiplier Accounts. For simplicity, the $2,400 additional income presented in Diagram 3 does not include the opportunity cost of the interest income from the Citi MaxiGain Savings Account, which had recently yielded a miserly 0.72%.

Conclusion

Of course, no one could predict that interest rates would fall off the cliff as a result of the Coronavirus. But when such black swan events do occur, you should always think about how you could take advantage of it. Refinancing to a cheaper mortgage is one such action that home owners can definitely consider undertaking. The savings can be immense as Heartland Boy has shown. In addition, the improvement to your household’s cashflow is more than welcome during such difficult economic conditions.

If you are interested to refinance your home loan, you may want to try  PropertyGuru’s proprietary smart refinancing tool to help you simulate your cost savings. Thereafter, you can work with their best in-class mortgage consultants to obtain the best home mortgage available in the market!


113 Comments

Comments

  1. Loo says

    Hi

    I am interested to finance my flat with the DBS loan.

    Can you furnish the details of your mortgage consultant? Thank you.

    Reply

  6. Stanley says

    Hi Alison, were there any issues in only being able to loan 75% of your hdb purchase price (for bank loan as per hdb limits) and having to cough up the remaining in cash/from your cpf? (cos from the numbers you mentioned above and assuming you took 90% loan from hdb initially, it seems like your outstanding principal currently is still more than 75% of your purchase price)

    also, if i understand your post correctly, there is no penalty in prepayment of your loan during the locked-in period of 5 years provided there is outstanding principal? does it mean you cannot sell your hdb without incurring the fee? or you can pay down your outstanding principal to $1 during the 5 years and just incur the penalty on that outstanding principal of $1 should you decide to sell during the 5 years when you hdb reach MOP?

    if there are some details you don’t want to share on this platform you can also send me an e-mail. thanks!

    Reply

    • Alison_Liew says

      Hi Stanley,

      No issue for me as my principal was less than 75%. In addition, the LTV limit will be based on the new valuation of your flat, not your purchase price. If its a BTO, the latest valuation should be markedly higher the purchase price.

      Hi, i can sell my flat without incurring penalty. Without selling the house, I can also prepay my outstanding loan (until there is $1 left) and not pay a penalty. That is the flexibility that i have with this dbs loan

      Reply

  12. Bjorn says

    Dear Alison,
    Great article. For me, I only just got my keys in Feb 2020 and begun my HDB loan payment in Apr 2020. Would I be right to say that I might have to cough up some cash for now as I believe my principal is >75%?
    Also, just curious on the Multiplier unlocking the home loan instalment category, you earn additional interest because you unlock a new category (Income+3 I assume, to reach $100K SGD tier), but since your home loan instalment will be paid by CPF, would this loan amount be counted as an eligible transaction? Thanks a lot!

    Reply

    • Alison_Liew says

      Hi Bjorn,

      Firstly, congratulations on the collection of your keys. I know how that feels.

      For your case, you might not need to cough up additional cash because how much you can borrow depends on the valuation on your house. The market valuation of your BTO should be higher than your purchase price, so you might not need to top up cash to meet the shortfall.

      Yes, DBS Multiplier will record your total monthly loan payment (both cash+CPF)

      Thanks for your compliments.

      Reply

  13. Wil says

    I just changed my HDB loan to DBS loan 3 months ago. Quite strange DBS will have commitment fee if I do partial payment within lock-in period.

    Reply

    • Alison_Liew says

      Hi Wil,

      It is actually not uncommon for banks to levy commitment fees for partial prepayment. Again, the interest rate environment in 1Q is dramatically different from 2Q. So the packages from even the same bank could differ dramatically.

      Reply

  20. Lokey says

    Hi Alison,
    Like to understand more on the interest saving part calculation. From the diagram above you mention it as Sep 20- Aug 25, help me understand whether it should be based on offer date or loan disbursement date. If it a offer date your effective months would be calculated as 57 months instead of 60 months of savings

    Reply

  22. Suresh says

    Hi! Could you link me up with your consultant please? Not sure if I might be eligible for this. Share the unit with my mum. She’s the 1st owner and I’m the 2nd. Left about 80K and the monthlies are by cpf.

    Reply

  28. James says

    Hi Alison

    Great article, thanks for the read.

    Can you share with me your mortgage specialist contact as well? Thanks much.

    Reply

  30. Hady says

    Hi,

    Mind to link up with your agent?
    By the way, how do you calculate the interest saved from lower interest in the first 5 year?

    Reply

    • Alison_Liew says

      Hi Hady,

      I have linked both of you up in an email. Let me know if you did not receive. Best of luck!

      Separately, I have sent you a home amortization schedule that I downloaded online

      Reply

  32. Alex says

    Hi Alison,

    Thanks for the recommendation.

    Don’t mind share with me your mortgage consultant’s contact as well? Much appreciated.

    Reply

  34. Xavier says

    Hi Alison,

    I have taken up a HDB loan and have yet to collect my keys. I will be collecting my keys in late 2021, do you think I should switch to a DBS 5 years bank loan like what you did? Or am I even allowed to do so? Thanks for your reply.

    Regards,
    Xavier

    Reply

    • Alison_Liew says

      Hi Xavier,

      I think its still possible to choose bank loan when you collect your keys. However, do note the higher downpayment and cash outlay for bank loan over hdb loan. Besides, you cannot commit to the bank loan rates today when u r only collecting your keys end 2021.

      Reply

  35. alvin says

    hi, can help link the mortgage consultant? also can i check roughly how much is the legal and other fees payable when switching from hdb to bank loan pls. thanks 🙂

    Reply

    • Alison_Liew says

      Hi Alvin,

      I have linked both of you up in an email. Let me know if you did not receive.

      There’s legal + valuation fee payable. The quote i received for them came in at slightly below $2,000. Therefore, the cash rebate from DBS will help me ensure no cash outlay when i switch from hdb to bank loan.

      Best of luck!

      Reply

  38. Damien says

    Hi Alison, thank you for this wonderful article!
    Could you share the contact of your mortgage specialist with me please?
    Thinking of refinancing after reading.
    Thanks!

    Reply

  39. Cindy says

    Hi! May I have your mortgage consultant’s contact? Would like to find out more information from him. Thank you!

    Reply

  42. Julian says

    Hi

    I am interested to refinance my HDB loan. Can you link me up with your mortgage consultant please? Thank you.

    Reply

  44. Daniel says

    HI, i have been following your blog for some time. Can i have the contact of your mortgage consultant please. Thanks!

    Reply

  47. Chris Lim says

    Hi, i am interested to refinance my HDB loan, can share the contacts of the mortgage consultant?

    Regarding the partial repayment, can you revise your monthly installment amount after making your partial capital repayment while maintaining repayment period, as opposed to shortening the the repayment period?

    Thank you!

    Reply

  49. Robin says

    Hi Alison,

    Thanks for your article and insightful sharing, possible to share with me the mortgage consultant contact (hope I’m not too late to the game)?

    Reply

    • Alison_Liew says

      Hi,

      You are not too late! Rates could even be lower than when I performed mine back in May. I have linked you up in an email, let me know if you did not receive it!

      Reply

  52. Berd says

    Hello!

    Do you mind to link up with your agent?
    how do you calculate the interest saved from lower interest in the first 5 year?

    Reply

    • Alison_Liew says

      Hi Berd,

      I have linked you up with my mortgage consultant in an email. He will also assist you in calculating your interest savings. Let me know if you did not receive my email. Good luck!

      Reply

  54. Shoba Krishnan says

    Hi
    Been reading your blog with interest. Would you mind setting me up with your mortgage consultant? Thanks!
    Shoba

    Reply

  56. Derek says

    Hi Alison,

    Did you have to source a legal firm on your own? The legal+valuation quote you received seem pretty attractive. Do you mind sharing the contact of the legal firm? Thanks.

    Reply

Trackbacks

Leave a Reply

Your email address will not be published. Required fields are marked *

As Seen On