Your eyes pop out a little when the mortgage banker shows you their rate: 1.2 per cent per annum? That’s less than half the interest rate your CPF accrues at. It’s “practically borrowing for free,” you’re told.

But then you realise there’s a catch: the home loan is cheap now, but in less than five years, the rates jump significantly; you may be paying way higher than two per cent.

When you point this out, you’re given a response you’ll hear in many banks: No problem! When it gets too high, just refinance to a cheap loan again! 

If you think that’s too good to be true…you’re right. Refinancing can keep costs low, but it’s never quite as straightforward when you try to do it:

What is refinancing, and how is it supposed to help you pay less?

To understand this, let’s consider how a typical home loan, such