Refinancing vs. Repricing: How to Save on Your Mortgage

What is Repricing? (Staying with Your Bank)

Repricing means switching to a different home loan package with your current bank. You’re essentially renegotiating the interest rate or terms without leaving your bank. Banks sometimes call it a “conversion” or “internal refinance.” How it works: you contact your bank (often their mortgage officer or a hotline) and say you’d like to explore repricing options. They’ll tell you what new packages they can offer existing customers. For example, if you’ve been on a floating rate, they might offer you a new 2-year fixed at current rates, or another floating package with a lower spread, etc. Repricing usually involves signing a simple variation agreement to amend the interest rate of your loan. There’s typically a fee for this service, often around $500 (some banks waive it as a loyalty gesture, but many charge). There’s no lawyer needed, and the process can be done within a few weeks or even sooner since it’s just paperwork. You don’t need to re-qualify for the loan because you’re not changing the loan amount or borrower – it’s the same loan just on new terms.

What is Refinancing? (Switching to a New Bank)

As covered in detail earlier, refinancing means taking your loan to a different bank (or to HDB or vice versa). It involves applying for a brand new loan, getting approval, and having lawyers transfer the mortgage. Refinancing can have more paperwork and time (maybe 1-2 months to complete) and has some costs – legal fees, valuation, etc. However, these costs are often offset by the new bank via subsidies. Refinancing gives you access to any bank’s rates, so you have a wider selection to choose from, which often means you can find lower interest rates than your current bank might offer for repricing.

Which Offers Lower Rates?

Generally, refinancing to another bank tends to secure lower interest rates than repricing. Why? Banks typically reserve their most attractive rates for new customers to lure them in. When you’re an existing customer, they know inertia might keep you around, so the offers they make to retain you might not be as sweet as what a competitor bank hungry for your business will give. For example, your bank might say, “We can offer you 2.2% if you stay,” but you see another bank offering 1.9% to new clients. That said, it’s not a hard-and-fast rule – sometimes if the difference is small, the convenience of repricing might sway you. It’s worth checking both: get a quote from your bank for repricing, and compare with at least a couple of refinance offers outside. Also, banks’ repricing offers may be limited in variety. They might push one or two packages on you, whereas outside you could find something that matches your preference better (like a longer fixed period, or a package with an offset account feature, etc.).

Cost and Hassle: Reprice is Easier, Refinance Might Save More

Choosing between the two often comes down to weighing cost/hassle vs savings:

• Repricing Pros: Very simple process, minimal paperwork, no need for credit checks or lawyers. Costs are low (just the admin fee). And you don’t risk any downtime between loans or any CPF complications. If your current bank’s offer is reasonably close to market rates, repricing is the path of least resistance.

• Repricing Cons: Might not get the absolute lowest rate available in the market. Also, sometimes the bank’s repricing offer might still include a lock-in period (so you’d be recommitting). And if your bank’s service isn’t great, you’re essentially continuing with them.

• Refinancing Pros: Ability to snag a significantly lower rate or better terms if another bank is offering them. You might get incentives like legal fee subsidies, cash rebates. You also get to reset things like who you bank with – maybe you’d prefer another bank’s customer service or features.

• Refinancing Cons: More effort – need to apply, get approved, involve lawyers. Usually a bit of waiting (several weeks) and coordination. If done at the wrong time (within lock-in) could incur penalty.

A typical scenario: Say your outstanding loan is $400k at 2.5%. Your bank offers repricing to 2.2% with $500 fee, no lock-in. Another bank offers 1.8% with 2-year lock-in, and will subsidize legal fees. The difference here is 0.4% interest, which on $400k is $1,600 per year. Over 2 years, $3,200 saved, minus maybe $500 remaining costs after subsidy = net $2,700 saved by refinancing. Is it worth it? Likely yes for most, as $2.7k is decent money. If the loan was smaller or difference smaller, you might lean to repricing to avoid hassle.

Other Considerations

• Relationship with Bank: Some people feel a sense of loyalty or convenience with their current bank (maybe they have all accounts there). Repricing keeps everything under one roof. But do remember you shouldn’t overpay by a lot just for loyalty – banks understand customers refinance; it’s business, not personal.

• Frequency: You can reprice multiple times with your bank if they allow (some have a limit like you can only reprice once during a lock-in or something). Refinancing you can also do repeatedly to chase lower rates, though each time you consider costs. Some folks reprice once, then a couple years later refinance when they spot a great deal outside.

• HDB loans: Note, repricing is a term for bank loans. If you’re on an HDB loan at 2.6%, “repricing” isn’t applicable because HDB has only one standard rate (pegged to CPF). You can only “refinance” from HDB to a bank to get a lower rate. And once you leave HDB loan, you can’t go back to it.

• Lock-in and timing: If you’re currently locked in, your own bank may not offer repricing that avoids the penalty – some banks require you to be out of lock-in to reprice without penalty. Others might let you sign a future-dated repricing to commence after. For refinancing, you generally will wait out the lock-in to avoid penalty (unless huge incentive to break).

• Partial payments: If you have plans to partially pay down your loan soon, repricing might be simpler to adjust after that. But you could also refinance to a smaller amount after a partial payment. Either way, consider if either route has restrictions – e.g., the new bank loan might require a minimum loan amount (often $100k or $200k minimum to refinance).

Making the Decision

A good strategy is: always check both options when your loan’s promotional period is ending. Get a quote from your current bank for repricing (it’s free to ask). Simultaneously, talk to a broker or check around for refinance deals. Then compare:

• What interest rate and features will I get by staying vs moving?

• How much will I save each way, after costs?

• How much effort do I want to put in, and is the extra savings worth that effort?

In many cases, refinancing wins if the rate gap is big. If the gap is small, repricing can be perfectly fine. There’s no harm in repricing to something decent now, and then maybe refinancing a year later if rates shift further – you aren’t stuck permanently by repricing (though note if you repriced into a new lock-in, you then have to wait that out). Try to avoid serial small repricings that lock you in each time for minor improvements; that could trap you from refinancing to a really good deal later.

In conclusion, both repricing and refinancing are valuable tools to keep your mortgage costs down. They’re two paths to the same goal: paying less interest. Savvy homeowners will use whichever makes sense at the time. Cashew’s advisors often help clients evaluate both options impartially – sometimes the advice is “Hey, your bank’s repricing offer is great, just take it,” and other times “You’d save much more by refinancing, let’s do that for you.” Now that you understand the difference, you can make an informed choice and ensure you’re not leaving money on the table with your home loan. Either way, the winner is you – with a lower interest burden going forward!