The Ultimate

Guide to
Property Financing
By Redbrick Mortgage Advisory
 INTRO

Among the 1000 things you need to do

today, you wake up thinking about your
refinancing. Why, you ask? Because the
beautiful loan rate you got hitched to 3
years ago no longer looks the same. With
that, it’s time to look around again.

But where best to search? Who best to

ask? These questions may bug you for
the rest of your day, as it can be quite
tedious to search in a sea of information
and to find trusted advisors who can
assist you in your best interests.

Facts are facts – everybody needs to eat,

breathe, and take care of their families, so
you are often told that what they have are
the best. Unfortunately, that is not an
easy thing to validate. Not easy until
today: in the next 20 minutes, you will find
out all the blind spots you need to cover
to keep your borrowing cost in check.
Table of Contents

Are you eligible to refinance?

Lock-in Periods
Interest Review Dates
Thereafter Rates
Subsidy Clawbacks
TDSR

Rates
Fixed Rates
SIBOR
SOR
Combo
Board Rates
Fixed Deposit Pegged Rates

Other Fine Prints You Should Take Note Of

Reference Rate
Lock-in Periods
Pre-payment Penalties
Interest Reset Dates
Cancellation Fees
Subsidies
Reimbursement Clauses
Princing Structure
Conversion Fees
Admin Fees/Processing Charges
 Are you eligible
to refinance?

Knowing how to refinance (and what

package to refinance to) is important, and
that will be focused later in this guide. For
now, we're focusing on whether you are
eligible to refinance, based on your
current loan package. This could be
something as simple as still being held
captive in your current lock-in period, or it
could be because in the past 2-3 years,
you bought a shiny new car and you are
still paying off the loan on that.

These are some of the many factors that

can make and break your eligibility to
refinance, and in this section, we will
delve deep into it!
 Lock-in Periods
Most packages, both old and new, often have lock-in periods for the first
2-3 years. The catch is that there’s usually a penalty involved if you
choose to move your loan elsewhere while these periods are still in effect.

To ensure that business is meaningful (to the bank), you will usually be
held hostage during the first 1-3 years of your loan. It is probably found in
the section of your (now forgotten) letter of offer. Check your files again –
the penalty is usually about 1.5 – 2 per cent of the outstanding loan
amount and that’s quite a sting.
 Interest Review Dates
The second hurdle to clear before we even start the race is to find out if
there’s a specific time and day that you can only take action. If not, you’re
subject to paying for a fee again. That said, however, this is usually only
applicable to packages which are SIBOR or SOR linked.

The banks peg the lending rate onto a reference rate like SIBOR or SOR;
these rates are reset monthly or quarterly, and the banks take advantage of
this to come up with an excuse stating that you have to redeem the loan on
the day the loan is supposed to reset.

This is just so you will have to stick with them for at least a little while longer,
and the fine usually amounts to another 1.5% on the total remaining loan
amount.

This date starts from the day your loan is disbursed, and every monthly/
quarterly/ yearly, depending on the reference rate of your package. Put
simply, we should only execute on the next available redemption.
 Thereafter Rates
The next thing to check is when your higher rates will kick in as you’ll want to
refinance 3 months prior. The golden rule here is to bring in your laundry
before it rains; things are not all well and good yet. You may not be in the lock
in period, you may not have an interest review date to worry about, and you
may have all the freedom in the world to make the best decisions for yourself,
but you sit on it.

The reason why you’re sitting on it is because the bride you married a couple
of years ago has aged a little, but she still looks somewhat okay. You have
not woken up to a horror story (yet). This horror story becomes apparent
when there is a sudden jump in the borrowing costs that you are paying, and
that could be as soon as tomorrow – or that may already even happened last
week.

The bottomline – the headline-attractive interest rate that first had you
enthralled could soon be changing, and changing very dramatically at that.

Let’s put some figures in perspective: if you took up a loan between 2008 to
2012, your first 3-year SIBOR margins might be 0.7%. Thereafter, it is more
likely to be 1% or 1.25%. Assuming SIBOR is 1% today, you may still be
looking at 1.7%. However if that were not the case, then the rate would have
jumped above and beyond 2% thanks to the change in margins.

Don’t blame anybody – it’s in your contract. It’s just time to get moving. The
right time to move is 3 months before the new rates kick in, because all banks
will require you to serve a 3-month notice before you port your loan over to
another financier.
 Subsidy Clawbacks
The final thorn in the flesh left to pull out is to make sure that you have fully
benefitted from your existing loan package before you say your last goodbye.
Most packages – especially those before 2013 – would have provided you
with sweeteners to secure your business.

These are the legal and valuation subsidies provided by your existing
financier. They are not free, unless this relationship is at least 3 years old.
What do you stand to lose? Anything from $2,000 - $5,000.
 TDSR
We are almost good to go! But time to look in the mirror – has anything
changed? No, not with how you look, but the state of your current finances
since you took up the last mortgage. This is the final stage for your
consideration; however, the math is not easy.

The good news is that while it can be complicated, it is not rocket science,
and there’s help available. There are people around who can offer genuine
advice and an unbiased point of view before you commit yourself, again, for
the next 2-3 years. And I’m not talking about those people who say that their
products are the best. Because let’s be honest, they are saying so only
because those are the only products they can sell to you.
 Rates

Now that we have taken care of the past,

it’s time to gaze brilliantly towards the
future. The instinctive question that is in
everyone’s head, especially at this
juncture: where to find the best rates?

Why best rates? Why not the cheapest?

Isn’t cheapest the best? Well, in this day
and age, we are all heartened to find
ourselves smarter and knowledgeable
enough to be aware that cheapest is not
always best. So let’s keep that
momentum and pay attention. “Best” is
one man’s meat but another man’s
poison, so it’s time to find your steak and
the way you like it now.
 Fixed Rates
(1-5 years)

If only fixed rates last forever… Among all the mundane, boring things in the world, this
constant would have been a preferred. Fixed rates* usually only last for 1-5 years – the
longer the fixed tenor, the more expensive the rates. Since fixed rates are not for
eternity, we have to examine what kind of reference rates apply on your loan after the
fixed period and we will talk about these reference rates now.

*We are good under these packages for the next 1-5 years; however, the floating rates
specific to your package thereafter will apply and it is important again, not only at that
point in time, but now when the ball is still in your court to know what they are and how
they may affect your decisions again in time to come.
 SIBOR
(1, 3, 6 & 12 months)

SIBOR stands for the Singapore interbank offered rate. It is based on the interest rates
used by banks in Singapore and the rate they charge one another when they borrow
among themselves. SIBOR packages come in denominations of 1, 3, 6 and 12 months,
and some banks may allow you to switch amongst these tenors.

Here’s how the trend for the past 10 years look like:

Association of Banks in Singapore, Redbrick Mortgage Advisory

 SOR
(3 months)

“The synthetic rate for deposits in Singapore Dollars (SGD), which represents the
effective cost of borrowing the Singapore Dollars synthetically by borrowing US Dollars
(USD) for the same maturity, and swap out the US Dollars in return for the Singapore
Dollars.” – abs.org.sg

The important thing you need to note for the swap offer rate (SOR) is that it is more
volatile than SIBOR because exchange rates are involved.

Here’s how the trend for the past 10 years look like:

Association of Banks in Singapore, Redbrick Mortgage Advisory

 Board Rates
A library of rates determined internally by the bank. Usually lower at onset, they
become increasingly mysterious as time goes by. If it changes, you only have 30 days
to act and react, assuming you could do something about it.

They are usually described as a combination of SIBOR, internal cost of funds and
associated business costs. You may find more description listed in your contract.

With board rates, there are no historical trends whatsoever.

Fixed Deposit Pegged Rates
(18, 36 & 48 months)

These are the simplest reference rates to understand, but beware – they are not the
easiest to predict. They are basically your fixed deposit rates, but the references are
strategically chosen. Most banks don’t provide a long and meaningful historical trend of
their rates. Instead of the 6-12 months FD rates that are more familiar to our mums and
dads, the longer, more obscure, less heard of 18, 36 and 48 months are used.

No one knows why, or is it really? Most people believe they are more stable and
transparent. The important takeaway here is that ultimately, they are still determined by
their respective institutions.
 Other Fine Prints You
Should Take Note of

You've gotten a hang of the rate types

available and you're ready to make a
decision. But wait! Before you do so,
there are still a few pointers to take note
of. In this next section, we cover the fine
prints that came with your contract. And if
you're thinking it has to do with more fines
and charges, then you're right.

But don't worry, the future is not that

bleak (yet), not as long as you read on!
Take note of all these pointers and you're
definitely good to go!
• Reference Rate
Reference rates can range
between a Fixed Rate, floating
rates pegged to SIBOR, SOR or
the internal Board Rates
determined by each financial
institution.

• Lock-in periods
Lock-in periods define the amount
of time one would have to keep the
mortgage with the bank. It usually
last anytime between 1-3 years;
however, there have also been
instances of lock-in periods of up
to 8 years. Also, if you choose to
redeem the loan (either due to full
settlement, refinancing or selling
the property) before it is due, there
is a chance you will chalk up pre-
payment penalties.

• Pre-payment penalties
Pre-payment penalties are usually
affected during the window of lock-
in period. This penalty ranges from
0.75% to 2% of the loan amount
pre-paid.

• Interest reset dates

Applicable to SIBOR or SOR
packages. Certain banks may
state that you can only redeem the
loan on specific dates, such as the
reset date of your loan. If you fail
to redeem the loan on such dates,
you may be subject to a penalty
ranging from 0.5% to 2% of the
loan amount redeemed.
• Cancellation fees
Should you choose to withdraw before loan
disbursement, you may be subject to
cancellation fees. This is applicable between
the time you take up the loan offer (i.e. sign
on the loan agreement) and the day the loan
is disbursed. Cancellation fees can span
between 0.5% to 2% of the loan amount
cancelled.

• Subsidies
When purchasing commercial properties, or
refinancing commercial or residential
properties, financial institutions may offer
subsidies to spur customers on in taking up
home loans. There are a few types of
subsidies available and they include
valuation fees, legal fees and free fire
insurance premiums.

• Reimbursement clauses
The aforementioned subsidies usually have
a minimum period for the customer to hold
on the loan, failing which all subsidies would
have to be paid back to the bank. This is to
ensure it is still profitable for the financial
institutions.
• Pricing structure (step up, step down, flat)
Depending on the bank, there are 3 types
of product pricing structures: step-up,
step-down and flat. Step-up structures
are where the loan gets increasingly
expensive; step-down structures are
where loan gets cheaper.

• Conversion fees
Most banks in Singapore operate home
loan packages on a step-up basis, so it is
necessary for you to go back to the bank to
discuss the terms of the loan. The banks
may entice you by having conversion fees
waivered; however, there are others that
will charge you a fee. This fee can rage
from $500 to $5000.

• Admin fees/processing charges

Admin fees or processing charges are
typically more commonly found in
commercial and industrial properties, when
obtained under a corporate organization.
You may have to fork out anywhere
between a few hundred to a few thousand
dollars to cover these fees and charges.
 To get access to the best
loan package for you,
click here!
http://mortgage.redbrick.sg/package/RefiGuide