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Tips To Consider When Choosing A Home Loan

+By Sean Lim

Founder of FindaHomeLoan.coTrusted by clients, Quoted in media

+About Us

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Competition amongst banks has led to be innovative in terms of rates, benefits and freebies.

The cheapest rates is not necessarily the most suitable. Though some home loan packages look so inviting but you should ask what your requirements are rather than purely based on rates only.

So here are 9 tips to take into consideration when comparing mortgage rates.

Tips To Consider

+Tip 1 : Fixed or Variable

If you feel loan interest rates will increase, fixed rate

mortgages might be better for you as it gives you a fixed

loan interest rate that doesn't change even if market rates

change.

However if you think that the market-based rates such as

SIBOR, SWAP/ SOR will drop, floating interest rate packages

could be a better choice.

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These mortgage loans let you pay only the loan interest

amount for a specified period. You thus make small

monthly payments for some time before you start to pay

off the loan principal amount as well. This is a wise

decision to leverage your finances to buy an overseas

property that allows you a higher rental yield. MAS has

banned interest only home loans for Singapore

properties. It’s available for Australia though.

Tip 2 : Interest Only Mortgage

+Tip 3 : Do Your Research

If this is your first property investment where you will

be depending on rent to repay your loan, first find

out more about the going rent in the area you intend to

buy your house. Remember that if you plan to rent your

house, it may lie vacant for some time. You thus need

sufficient standby funds to pay your installments to

avoid loan defaults.

+Tip 4 : Holding Period

Whether you are a home owner or property investor,

home loans in Singapore have a lock in period, ranging from

zero to few years.

Zero or smaller lock in period is appealing to short-term

investors where the intention is to sell the property within

few years outside the lock in period.

Selling the property, within the lock in period attracts a fees

charged by the bank. Some banks in the past have launched

mortgages that waive this fees if one make a full redemption

via sale of a property.

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With the recent cooling measures in Singapore for

residential properties, a longer lock in period may

be logical since selling the property within the first 4

to 5 years will incur additional taxes imposed by the

government. Mortgages with longer lock in period

should has better perks, such as lower margin or

spread or free fire insurance for more years.

Tip 4 : Holding Period

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Banks grant a legal subsidy when one takes up a

mortgage loan for the private property or HDB flat. This

legal subsidy goes towards the legal conveyancing fees

charged by the law firm. Usually, the subsidy ranges from

0.4% to 0.5% of the loan amount, or $2,000 to $3,000,

whichever is lower. Some banks may have tie ups with

law firms that covers fully the legal fees even if the legal

subsidy is insufficient to cover the legal fees

Tip 5 : Legal Clawback

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Banks will have a panel of law firms that they work with. If one

prefers to use a law firm not on the bank's panel, the bank will

impose additional fees, above the typical legal conveyancing fees.

This means you will have to pay more to use this law firm. Hence,

it's prudent to check with the bank if you intend to use your own

law firm. Otherwise, there is no reason not to utilize any of the law

firms on the bank's panel, whom have been scrutinized and

selected.

Tip 6 :Law Firm

+ Tip 7 :Fees

There are numerous housing loan terms where a lender

can charge you more for your loan like processing,

default, late payment, annual, cancellation, partial or

full redemption and fall below fees. However at times,

lenders may subsidize the closing costs through

insurance premiums and valuation and legal fees.

+ Tip 8 :Total Debt Servicing Ratio

TDSR is a ratio banks use to calculate to decide if the

loan is affordable to you. It’s now standardized

according to the guidelines set by MAS.

You can only use 60% of income to repay all debts in

Singapore. Offshore financing differs as they are

governed by other central banks.

+ Tip 9 :Mortgage Insurance

is necessary as if something happens to you wherein

you lose your income, instead of your family facing the

debt of the mortgage; the insurance company is

responsible for the loan. It usually is a reducing term

insurance, where the coverage reduces every year as

the home loan amount decreases with the repayments.

You can also determine the interest rate pegged to the

insurance.

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With these tips in mind, you will be able to find the right

house loan in Singapore for yourself. 

Start today to shop for the best (oops, we mean most

suitable) mortgages, using the

Home Loan Calculator.

For existing home owners, check out your options between

repricing versus refinancing here. Remember, the lowest

interest rate mortgage might not be the best.

Conclusion

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