The chief purpose of any home loan is to help you fund a property purchase that you cannot otherwise afford to pay fully in cash. Such is the practice these days that a buyer will most probably end up with a pile of home loan offers to choose from.
Nobody wants to pay more than they have to. But perhaps not surprisingly, the factors and features that home borrowers weigh up to decide on a housing loan does not always come down to costs and interest. It also comes down to potential costs based on what are the likely actions the borrower foresee that they will take in future. We monitor the Singapore market for the best mortgages and clients don’t always take up the deals with the best interest rates. They may take up one that has a particular feature that suits their personal plans and needs.
There are so many different housing loans on the market that you can really be bombarded with too much information. So how you decide on which home loan to accept depends on how you weigh up the loan terms and features. Here are the main things that borrower look at to come to a decision.
1) Loan to value. The most common reason home loan offers are outright rejected by a borrower is due to a low loan quantum. When you require an 80% loan to value (LTV) and is only offered 70%, it means that you have to fork out the remaining 10% in cash. If the property value is $500,000, 10% comes up to $50,000. That is a lot of cash.
Because banks and financial institutions have their own internal policies on lending, they may set a ceiling on loan to value. Limits can be determined by the type of property like for HDB flat, commercial property, private property, industrial property, building under construction (BUC), etc. Even the district that the property belong to can affect LTV limits.
2) Interest rates. When a borrower obtains housing loan quotes and offers that meet the required LTV, interest rates are the next feature that will be scrutinized between the different offers. This is when you will be spoilt for choice on the different interest rates that are available. This is also when you will have to choose between fixed rates, SIBOR pegged rates, SOR pegged rates, etc.
There are packages that have increasing interest rate year on year, reducing interest rates year on year or having the same interest rates throughout the life of the housing loan. These mortgage deals however, always end with a “Thereafter” rate.
Read more about Singapore housing loan interest rates.
3) Lock in period. What always go along with interest rates is the lock in period. Generally, if you are to find very low interest rates that are available to you, you can expect there to be a lock in period during the term of that particular rate. It is only fair that when a mortgage lender is willing to offer you radical rates, you stay loyal to the lender during that period.
By theory, if you intend to retain the home loan throughout it’s whole lifespan, lock in periods will not be a concern to you. However, when you have the intention to refinance your home loan by way of a straight refinancing or home equity loan, the lock in period will be a material concern. You can expect penalty fees if you are to redeem the loan within the lock in period.
4) Term and duration. Although increasing the length of a home loan tenor increases the total interest rates that a person has to pay, this is a factor that people often ignore when deciding on the tenor. The issue is always on how much will monthly installments be with different tenors. Very often, borrowers decide on a tenor based on the monthly installment they are comfortable in repaying. Not deciding on a tenor based on how much total interest they want to pay, and then accepting the monthly installment tabulated with the home loan calculator .
5) Monthly Installment. Depending on your personal cash flow, you have to decide how much you can afford to pay each month for the home loan installments. Banks are usually flexible on tenors as long as they are comfortable that you can afford it with your personal income. A lot of borrowers do not put a lot of emphasis on monthly installment amounts when they are using their CPF to service the repayment of the housing loan. However, monthly repayment amounts will be a critical factor if the borrower is going to use cash.
6) Legal fee subsidies. A mortgage is legally binding and therefore the services of a lawyer is required. Banks usually have their own panel of appointed lawyers. But most will have no issues if you want to engage your own lawyers to prepare the paper works. There is a catch though. The subsidies on legal fees may be compromised if you do not engage the bank’s appointed lawyers. The subsidy amounts are determined as a percentage to your loan quantum and have a cap of around $2500 to $4000.
7) Fire insurance. Depending on which lender and the nature of the housing loan package that you take up, free fire insurance may be offered to you for up to 5 years. Although insurance premiums may be immaterial when you compare that to the size of your mortgage, accept them gleefully as long as they are free.
Although these are the 7 home loan features and terms that most commonly determine a borrower’s decision when comparing Singapore home loans, it is not always the complete list. Different housing loan hunters have different needs and decision making processes and will weigh each feature differently or put considerable importance on factors that are not available on this list. If you want more home loan options, you can contact us by using the contact button on the top right of this page.
for the last 36 months?
Enter your email below so we can send it to you.