More home owners refinance mortgages in 2024

Mortgage loan refinancing and repricing activity by private home owners and Housing Board flat owners picked up significantly in 2024 after fixed mortgage loan rates fell below 3 per cent from the second quarter.

Following the US Federal Reserve’s successive rate cuts from September 2024, local banks told The Straits Times that they saw a more pronounced increase in mortgage loan refinancing and repricing transactions.

Refinancing involves taking out a new home loan with a different bank after the current loan exits the lock-in period.

Repricing, meanwhile, refers to switching to a new loan package with the existing bank after the lock-in period for the current loan ends. 

UOB saw HDB loan refinancing transactions climbing 85 per cent in 2024 from a year ago, and rising 60 per cent year on year for the June-November 2024 period.

Private residential loan refinancing transactions for 2024 rose almost 15 per cent from 2023.

Ms Jacquelyn Tan, UOB’s head of group personal financial services, cited “potential savings from a lower interest rate environment, as well as attractive terms and perks offered by financial institutions”.

Ms Chelsea Ling, head of home financing at DBS Bank’s consumer banking group in Singapore, noted that many of its customers have been inquiring about one-year to three-year fixed-rate home loan packages, which range from 2.6 per cent to 2.9 per cent per annum.

“This trend is particularly prominent among customers whose existing loans have exited the lock-in period and are currently on floating rates, which remain higher than fixed rates,” she said.

She added that there was a notable increase in refinancing and loan repricing applications between September and November 2024.

“This marks a shift from June to August 2024 when many customers adopted a wait-and-see approach,” she said.

In particular, average monthly new bookings or approved loans for the POSB HDB home loan jumped 70 per cent in October and November 2024, after DBS in September launched three-year to five-year fixed-rate packages ranging from 2.5 per cent to 2.65 per cent, Ms Ling noted.

Redbrick Mortgage Advisory associate director Clive Chng also saw a steady increase in HDB flat owners refinancing their mortgages from June 2024, after some banks offered five-year fixed-rate packages at 2.5 per cent, below the HDB concessionary interest rate of 2.6 per cent.

“Many home owners expect further rate cuts. Despite the irreversibility of switching out of an HDB loan, they are confident they can refinance again at even lower rates in future if the trend continues,” he said.

Mr Chng added that although the rise was notable, it was not as dramatic as in the mid-2019 to early 2020 period when interest rates fell more sharply.

“Back then, the number of HDB refinancing cases jumped 40 per cent to 50 per cent in a few months,” he said.

He noted that the uptick in refinancing by private home owners was more pronounced from August till end-December 2024 because interest rates for three-year fixed-rate packages dropped below 3 per cent, from 3.3 per cent to 3.5 per cent.

According to Redbrick, the current rates for two-year and three-year fixed-rate packages range between 2.5 per cent and 2.75 per cent, while variable or Singapore Overnight Rate Average (Sora)-pegged packages range between 3.6 per cent and 3.8 per cent.

Also spurring refinancing were aggressive promotions such as free conversions within the mortgage package’s lock-in period and higher cash rebates, Mr Chng said.

“A free conversion refers to the ability to change one’s existing mortgage package to another within the same bank. This is useful when interest rates are dropping,” Mr Chng said.

“For example, those on a two-year fixed-rate package at 2.65 per cent with free conversion after Year 1 can switch to a prevailing interest rate package after Year 1. The prevailing interest should be lower in a declining interest rate environment.

“What this means is the home owner won’t have to wait until the two-year lock-in period is over before refinancing.”

UOB’s Ms Tan said the bank’s fixed mortgage loan rates over the past two years have dropped more than the Fed’s 1 per cent rate cut from September to December 2024.

But she warned that the outlook for mortgage rates in 2025 is uncertain as the US central bank has signalled that it may implement only two quarter-point cuts in 2025, down from four as earlier indicated.

Fewer rate cuts in the US would limit the downside for short-term Singapore rates such as Sora, which influences mortgage rates.

Mr Chng also sees more moderate refinancing activity in 2025, but he believes that home owners with “existing loans at above 3 per cent to 3.75 per cent will still find value in refinancing, if new packages are closer to 2.5 per cent and 2.8 per cent”.

“If global economic growth softens and the US Fed revises interest rate policies further downwards, we could see a renewed wave of refinances in mid- to late 2025. However, if rates do not drop significantly below current levels, refinancing volumes might normalise,” he added.

In deciding whether to refinance, Ms Lorna Tan, head of financial planning literacy at DBS, said home owners should first check for any penalty as most home loan packages have a two- to three-year lock-in period.

Also, evaluate if a refinancing package gives the flexibility to cater to changes, such as the intention to sell the property, penalty-free partial repayments and changes in interest rates.

Another consideration is the switching costs of refinancing a mortgage or home loan at another bank, such as legal fees and valuation costs, she added.

Ms Maryanne Phua, OCBC Bank’s head of home loans, cautioned: “While there may be subsidies provided by the new financier to defray legal and valuation costs, these typically come with a three-year clawback period and may not be sufficient to cover the fees fully.”