What is a mortgage clawback clause?

A mortgage clawback clause is a provision in your loan agreement that requires you to repay certain incentives or subsidies provided by the bank if you terminate the loan within a specified period, typically 3 years.

When banks compete for mortgage customers, they often offer incentives to sweeten the deal. These can include legal subsidies (covering part or all of your legal fees), cash rebates, valuation fee waivers, or fire insurance coverage. These incentives have a monetary value, and the bank provides them with the expectation that you will maintain the loan for a minimum period.

If you refinance to another bank, fully repay the loan, or in some cases sell the property during the clawback period, the bank will require you to return the value of the incentives received. The clawback period often coincides with the lock-in period but can sometimes extend beyond it, typically 3 years in Singapore.

For example, if a bank provided a legal subsidy of S$2,000 and a cash rebate of S$500, and you refinance within the clawback period, you may need to repay S$2,500 to the bank, in addition to any early repayment penalty.

The clawback amount typically reduces over the clawback period. Some banks prorate the repayment. For instance, if the clawback period is three years and you refinance after two years, you might only need to repay one-third of the incentive value. Others require full repayment regardless of timing within the clawback period.

Always read the clawback clause carefully before signing your loan agreement. Compare the value of incentives against the potential clawback liability to understand the true cost of exiting the loan early.

Cashew's advisors flag clawback clauses when comparing loan packages and factor them into the total cost analysis, ensuring you understand all potential liabilities before committing.