What is a lock-in period?

Key takeaways

• MAS’s property loan fact sheet (Form 1 of Notice 632A) states the lock-in period in years from the date of first loan disbursement, and says that during it penalties may apply if the borrower makes additional repayments, repays the entire loan early or re-finances. MoneySense describes the lock-in of a fixed rate monthly rest loan as the period during which the interest rate stays the same, and notes that for bank loans variable rates apply after the fixed rate lock-in period ends, a period that differs by loan package. CPF Board notes that bank housing loans offer floating rates pegged to a benchmark such as SORA, or fixed rates for a pre-determined period (usually one to three years) before reverting to floating.
• CPF Board says most bank loans have a lock-in period, typically around one to three years, and that paying off the loan early or refinancing with another bank within it incurs a penalty that could be around 1.5% of the outstanding loan amount, although terms vary by bank and loan package. It lists legal fees, valuation fees and potential clawbacks of subsidies or rebates from the initial bank as other refinancing costs. MAS’s illustrative fact sheet (Form 2), written for a fictional borrower and lender, also shows a 3-year lock-in from first disbursement and a charge of 1.5% of the outstanding loan amount for additional repayments or paying the entire loan; it is an example, not a rule or a market figure.
• MoneySense states that a bank must give a property loan fact sheet before a borrower signs up for a home loan, and lists the lock-in period and penalty fees among its key features. Under MAS Notice 632A a bank must also give one when it or the borrower starts a discussion to re-finance or restructure an existing loan, and again when any key feature changes. The fees table has rows for re-financing with the same institution and with a different one after the lock-in period, a row for additional repayments or paying the entire loan stated as a percentage of the outstanding loan amount, and a row for any other fees or charges, with recovering subsidies among the examples. Where subsidies are offered, MAS’s FAQ says the table should still list the net fees, and that the terms of such subsidies, such as clawback conditions, should be clearly communicated.
• CPF Board says an HDB loan has no lock-in period, so there is no penalty for paying it off early, and that it can be refinanced to a bank loan at any time, subject to the bank’s approval; once refinanced with a bank, it cannot switch back to an HDB loan. HDB states there is no lock-in period and no administrative fee for a partial capital repayment on its housing loan; the minimum is SGD 5,000, in multiples of SGD 1,000, where the loan commencement date was on or after 1 April 2012, and SGD 500 where it was earlier. A housing loan from a financial institution may be refinanced with another institution or a different interest rate package, subject to that institution’s terms such as the lock-in period, but not to an HDB housing loan.
• On MAS’s fact sheet, the bank must not change a fixed component of the interest rate during the period for which it is stated as fixed, and must state the advance notice it gives before changing any component that is not fixed. MAS’s FAQ says an institution that changes key features beyond what was agreed and shown in the Fact Sheet would be expected to offer an appropriate alternative arrangement, giving a waiver of the remaining lock-in period and penalty fees for repricing or refinancing as an example; it also says institutions should refrain from exercising right-of-review clauses except in extraordinary and unforeseen circumstances, and that when one is exercised MAS expects a robust governance process to approve it, alternative arrangements such as a waiver of lock-in mechanisms, and sufficient advance notice in writing. In a written reply for the Parliament sitting of 7 November 2022, published by MAS, the Senior Minister and Minister in charge of MAS said borrowers may not have as much flexibility to refinance when interest rates fall, because longer-term fixed rate loans come with longer lock-in periods.