What are the costs involved in refinancing?

Legal Fees

Legal fees are typically the most significant upfront cost. When you refinance, new mortgage documentation must be prepared by a law firm appointed by the new bank, with fees generally ranging from S$2,000 to S$3,000.

The good news is that most banks offer legal subsidies as a refinancing incentive, covering part or all of this cost. For loans of S$300,000 and above, full subsidies are common.

Fee Subsidies Apply to Refinancing Only

This is an important distinction that surprises many first-time buyers: legal and valuation subsidies are a refinancing incentive, not a standard feature of every home loan. They exist because banks are competing to win customers away from one another, so they absorb the cost of switching to make the move painless.

When you are buying a property, there is no competitor to win you away from. You are entering the market for the first time on that property, so the bank has no switching cost to remove. Conveyancing fees on a new purchase, which cover far more than the mortgage documentation alone, are yours to pay, and you appoint your own lawyer rather than using one from the bank's panel.

In short:

• Refinancing: expect legal subsidies, and often valuation subsidies too. Out of pocket cost is frequently close to zero.
• New purchase: expect to pay your own legal and conveyancing fees in full. Budget for them from the outset rather than assuming a subsidy will cover them.

Subsidies also come with conditions. They are typically capped at a fixed amount or a percentage of the loan, are only offered above a minimum loan quantum, and are subject to clawback if you redeem or refinance again within a specified window. A subsidy is best understood as the bank prepaying a cost on the expectation that you will stay for the lock-in period.

Valuation Fees

Valuation fees apply when the new bank requires a fresh property assessment to confirm current market value. This typically costs S$350 to S$600 for HDB flats and S$600 to S$900 for private properties, though many banks absorb this as part of their refinancing package.

Early Repayment Penalties

Early repayment penalties are where the real risk lies. If you refinance during your lock-in period, penalties are typically 1.5% of your outstanding loan amount. On a S$700,000 loan, that is S$10,500, enough to wipe out any interest savings and make the switch financially unviable. This is why most borrowers wait until their lock-in period ends before making a move.

Clawback Clauses

It is also worth checking your existing loan agreement for clawback clauses, which may require you to repay subsidies or incentives received from your current bank if you refinance within a specified window, usually three years. Note that this window does not always run in step with your lock-in period, so a package that is free to exit on paper can still trigger a clawback.

Processing Fees

Processing fees from the new bank are less common today as banks compete aggressively for refinancing customers, but they are worth confirming upfront.

The Bottom Line

When all costs are tallied, a typical refinancing exercise outside the lock-in period, with a legal subsidy from the new bank, can cost anywhere from zero to a few hundred dollars out of pocket. Inside the lock-in period, the penalty alone usually makes refinancing uneconomical.

Cashew's advisors provide a complete cost-benefit analysis for every refinancing recommendation, factoring in all fees, subsidies, penalties, and interest savings so you have full clarity before making any decision.