Buying a property is probably the biggest financial commitment for most Singaporeans. Just as we ponder over our choice of a dream home, we should also do our homework when it comes to choosing a mortgage package to ensure that we keep our financial liabilities to a minimum.
Given the myriad of mortgage packages on offer, each with its own interest rate, fees and criteria, it can be tedious (especially for a new property owner) to navigate the various mortgage options and assess the impact of each one on the loan costs and repayment. Here, we at GET.com address the key questions that will help you in your quest for a suitable mortgage package.
4 Key Questions To Ask In Order To Find A Suitable Mortgage Package
1. HDB Or Bank Loan?
There are pros and cons to each type of loan. If you fulfill the basic requirements of applying for an HDB loan, the stability of interest payment (fixed at 2.6% p.a.) and more lenient payment conditions (smaller down-payment of 10% of property price which can be fully funded by CPF, no early repayment penalties) of a HDB loan would appeal to the more risk-averse.
On the other hand, bank loans could offer you more flexibility and rate options if you do not qualify for an HDB loan or prefer to capitalise on the interest savings associated with lower bank loan rates.
Do note that the Loan-To-Value (LTV) ratio at which banks may finance your property is capped at 80% of the property price, and 90% for HDB loan.
Regardless of whether you choose an HDB or bank loan, your total loan obligations cannot exceed 60% of your monthly gross income, according to the Total Debt Servicing Ratio (TDSR) requirement. Also, HDB flat and Executive Condominium owners are subject to the Mortgage Servicing Ratio (MSR) requirement, which limits your monthly mortgage repayment instalment to 30% your monthly gross income.
2. Fixed Or Floating Rate Loan?
Banks in Singapore offer mortgage loans pegged to either a fixed rate or floating rate. Under fixed rate home loans, interest rates stay the same for a fixed period of time during the initial 1 to 5 years. Floating rates, on the other hand, can change and are usually pegged to a type of benchmark rates – Singapore Interbank Offered Rates (SIBOR), Swap Offer Rate (SOR) or the bank's internal board rate.
Fixed rate loans allow you to better plan your finances because you'll know exactly how much you are going to pay each month. This gives you the stability to set aside a certain amount to service your monthly repayments. The downside is that interest rates for fixed rate home loans tend to be a little higher than floating rate loans.
On the other hand, floating rate loans usually start with lower initial rates but they are considerably more volatile as they follow industry benchmark rates SIBOR and SOR which are dependent on prevailing economic conditions, US Federal Reserve rate and USD-SGD exchange rate movements.
Floating rate loans have largely maintained their popularity in recent years given the subdued interest rates environment. The SIBOR and SOR have been on a downtrend since the beginning of this year, when the 3-month SIBOR and 3-month SOR rates rose to around 1.25% and 1.76% respectively following the Fed Funds rate hike in December 2015 after years of near-zero interest rates. Floating rates pegged to the SIBOR or SOR would benefit borrowers when interest rates remain low.
For those who are interested in floating rate home loans but would like to mitigate the risks or uncertainty in interest rates movement, you could consider a loan that comes with the flexibility to switch across different SIBOR tenures. Alternatively, a fixed-deposit home loan would provide more transparency in the annual interest rates since these are pegged to the bank's fixed deposit rate which is publicly available, rather than the mysterious board rate or more volatile SIBOR and SOR.
3. Other Factors To Consider?
Borrowers should look out for conditions associated with the loan to determine if they are eligible for refinancing and the costs they need to incur.
These include the lock-in period (time frame in which the borrower has to keep the mortgage with the bank), prepayment penalties (usually between 0.75% to 2% of loan amount prepaid), cancellation fees (usually between 0.5% to 2% of loan amount cancelled) and fees associated with refinancing such as legal fees (usually about 0.4% of the loan amount), valuation fees as well as 'clawback' of subsidies given by the existing lender. All these conditions are important in the long run and could work to your advantage or disadvantage down the road.
4. How To Get The Best And Latest Rates?
There are several ways of sourcing for a mortgage package. You could rely on word-of-mouth or consult individual banks, or make use of a home loan comparison platform like GET.com.
The former two methods might not be the most effective because a recommended loan could be less than ideal depending on your own financial circumstances and risk appetite; or lack in transparency as a result of respective banks presenting you with a limited view of the mortgage market.
A home loan comparison platform, however, provides added value, being a convenient and hassle-free way to find out for yourself which are the various home loan options available in order to make a well-informed decision. Moreover, there is no additional cost for you in financing your home this way. You can use the Home Loan Genius on GET.com to check out the latest and most attractive fixed or floating rate loans in Singapore, as well as compare the mortgage packages and apply for an appropriate package via the site.
Your Source For Home Loan Information
Find out more about home loan rates and what to look out for with the help of our handy property blog. Are you refinancing your home loans? If your answer is yes, then it'll do you good to consider these 3 things before you refinancing your home loan. Also, check out these 4 things you ought to consider whenever you're comparing home loans.
For those who are buying their first home, here's how much money you'll need to buy your first HDB flat. Fret not if the figures seem daunting, you might be eligible for some grants. It pays to do some research and find out if you're eligible for HDB grants that'll help offset some of the cost of your new home.