Should I Refinance or Should I Reprice?
Updated: Jul 2, 2020
One of the most common reactions that we get from clients when we mention repricing to them is, “Huh? What is repricing?” Well seems like property buyers who took loans to finance their property purchase will be familiar with the term ‘refinancing’ but not ‘repricing’. So, what is the difference between the two?
Basically, the main difference is very straightforward. Refinancing simply means switching our existing home mortgage loan to another bank or financial institution, while repricing is when we opt to take up a new loan package with the same bank. Even though there is a slight difference between the two, both aim to fulfil the same purpose for the buyers to enjoy a better loan package which usually means a lower interest rate. Home owners will usually do refinancing or repricing only when the lock-period is over. Lock-in periods commonly ranges from 1-3 years. If we choose to do either of the two during the lock-in period, we will be subjected to a penalty which is commonly 1.5% of the outstanding loan amount. If the outstanding loan amount is substantial, this 1.5% penalty can be pretty high and it doesn’t make any economical sense to go ahead to reprice or refinance.
So now you might be asking, so which one should you be choosing? Well first of all it depends on the prevailing interest rates offered by the bank. Of course, we will tend to bend towards the one who offers the better rates. After shortlisting the loan packages that you are interested in from the different banks, next will be to check on the costs. For repricing, as it is still within the same bank, usually the bank will just charge an admin fee ranging from $500 to $1000. If your bank charges you an admin fee that is on the higher end, you can try negotiating. Yes, you heard me right, you can negotiate with the bank! There were many cases where our clients managed to get a lower admin fee after negotiating.
For refinancing, the costs will be higher. As we are switching banks, we will need to engage a solicitor, so legal fees and also valuation fees will be involved. Legal fees will commonly range between $2,000 to $3,000, depending on the solicitor that you have engaged and valuation fees can range from $200 to $400. Factoring all these costs, we will need to see if the savings from taking up the new loan package is worth the hassle and costs. One piece of good news is, sometimes bank will offer legal subsidies to those who refinance with them and that will help to sweeten the whole deal altogether. Do note that if you had taken legal subsidies from the bank, they may impose certain restrictions such as clawing back of subsidy amount if the conditions are not met. So, it will always be good to check with your bank.
If the interest rates from the other banks are only a teeny bit lower than what your existing bank can offer and there are no legal subsidies from the other banks, it might be a good idea to just reprice with your existing bank. Unless the interest rate is really much lower and especially if your outstanding loan amount is substantial, then it might be worth it to even pay the costs to refinance to another bank.
If you have bought a property anytime between 1-3 years ago from today, then it might be worth it to dig out your bank’s Letter of Offer and check if your lock-in period is over. With the US Federal Reserve cutting their rates, our home loan interest rates are also sliding down. This definitely spells good news for borrowers but not for savers. So, if you had taken up a housing loan between 1-3 years ago, there’s a very high chance that you will see great savings if you refinance or reprice now. As we are writing this article, we just received news that one of the banks is offering below 1.4%. Now that is one attractive rate!
We hope this article manage to spell out the differences between refinancing and repricing and most importantly we hope this article can help you to save some money on your interest rates if you managed to refinance or reprice after reading this article. If you still have any doubts or queries on how this works, please feel free to contact us and we will be more than happy to share more with you.
* All facts and figures are accurate at the point of writing. <Photo by Fabian Blank on Unsplash>
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