Recently, home loan interest rates in Singapore have fallen significantly from the peak of 4.x% to the current 2.x% in 2025. Sadly, this drop in interest rate has not translated to a decrease in our home loan interest rate. This leaves us with a dilemma – do we refinance to capture the attractive 2.x% interest rate, or do we keep holding out hopes that our current home loan interest will drop?

Honestly, it was really very tempting to refinance, and based on our very rudimentary calculations, we could see a drop of $300 – $400 in the monthly installments that we are currently paying. However, we see it as a bandage solution to our bleeding pocket. Ultimately, many restrictions would come back into place once we have locked into a new home loan package after refinancing.

After much deliberation, we choose the more conservative option – to remain with our current package. This would mean we would still be paying 4.x% interest on our mortgage loan. Doesn’t seem like a wise financial decision on paper, but it is what works for us. Here’s why.

We are making partial prepayment

After calculating how much of our monthly installments are going to feed the interest on our loan, we decided to bite the bullet and make partial prepayment to our home loan wherever we have additional money saved up. If you are interested in the calculations, you can read our write-up on how making a $10k early prepayment will save you $6k in interest over the loan tenure.

If you have the time, do sit down and calculate how much percentage of your installments are actually going to reduce your principal loan, rather than paying off the interest instead. Fun fact, more than 60% of our monthly installments are going to the interest. Our principal loan is hardly bulging after paying installments for more than 5 years.

Flexibility to sell current home

Once you refinance a home loan, you are subject to a lock-in period of your choosing which may range from 1 year to 5 years. During this lock-in period, most financial institutions usually have clauses to impose penalties if you choose to make early repayment or redeem your loan early. We will be subject to this penalty if we sell our home during the lock-in period.

As we are toying with the idea of changing a new home, we decided to push back on refinancing our mortgage home loan as it means we will incur a penalty for the redemption of our home loan during the lock-in period. We retain some form of flexibility and allow us to not take mortgage penalty into calculations if we were to move home.

Potential for interest rates to fall further

We are obviously not market experts, mortgage brokers, or financial experts, and we obviously do not know how the market will move down the months. However, we feel that the current rate is not attractive enough to entice us to refinance. Yes, while it will save us a few hundred bucks every month, the savings we get from making early prepayment is much much pronounced over the long term.

We feel that unless it dropped to a very attractive interest of 1.x%, it does not make economical sense to refinance to the current home loan package. This may or may not happened similarly to the Covid period, but one can dream right?

At the end of the day, we are more inclined to make early repayments to our mortgage loans, as fixed deposit, T-Bills, and SSB interest rates have dropped significantly, and we have a bit more spare cash after our stable investment has matured.

We are pretty happy with the results so far and the percentage of installments paying off the principal loan has increased more significantly. In addition, as we are a single-income family, clearing off debt, and working towards having lesser expenses makes more sense for our mental health as there is lesser worry about money as we grow older.

Last Updated: 07 Feb 2025