5 Important Factors to take up a Home Loan in Singapore
All | Home Loans | Loansby Priyadarshini 23 September 2020
Thinking about Home Loans? Confused about what to choose? There are plenty of options when it comes to home loans. For instance, loan term, floating or fixed interest rates, lock-in period, etc. among many others. It all depends on your preference and what you need. We have curated a list of 5 most important things to consider before you take up a home loan.
Amount of Loan
Banks in Singapore usually allow a loan up to 75% of the property value. This of course is for first-time homebuyers. However, the actual estimate of how much you can borrow will depend on your loan repayment capacity. Singapore’s regulations have servicing ratios like Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) which will be considered in regards to your income and only then the final loan amount will be generated. It is recommended to always get an idea of an estimated amount that will be granted to you before you purchase any property.
Tenure of Loan
The tenure of the loan is the time you take to repay the loan completely. In the case of home loans, the tenure usually ranges from 10 to 35 years. Remember, the calculation is simple, the longer the loan tenure the smaller the monthly instalments, but the higher the total amount of interest. Also, banks will consider your age as a factor before granting you the loan. So, young buyers have a good chance to choose longer loan tenure.
Fixed or Floating Interest rate
Home loans have two types of interest rates, fixed interest rate & floating interest rate. Fixed rates will give you stability and security as the interest rate will not change over time. However, fixed-rate housing loan packages charge a higher interest rate than floating rate housing packages. If you think you have ample knowledge of economies & markets, you can opt for floating rate housing packages as when the interest rate falls your monthly instalments will also fall. This can be tricky at times, if the interest rate shoots up then, you will have to be able to still service your monthly payments.
Promotions & Special Features
In Singapore, some housing loan packages offer an interest offset feature, which allows deposits at the bank to be used to offset the loan amount. In this way, all you are required to pay is the interest on the difference. If you are one of the borrowers, who does want to block a huge chunk of funds and want to have cash liquidity for other uses, you can opt for this feature. Some banks here also offer interest-only packages. For such housing loan schemes, you are required to pay the interest-only for a certain period and after that loan will return to regular interest plus the principal loan. Investors who want to minimize cash outflow can make use of this policy.
Subsidies & Penalties
Home loans also come with various subsidies. For instance, legal valuation, fire insurance fees, etc. When you are researching on housing loan packages available, look for various subsidies that banks offer. Next comes the lock-in period, typically shorter lock-in period have higher interest rates. You can decide upon the lock-in period basis your judgement of when you want to sell the property. However, there’s a catch, if you repay the mortgage within the lock-in period, then you will have to pay a penalty usually ranging from 0.75% to 1.5% which is also substantial. If you have been a longstanding & loyal customer of the bank you are applying for a loan with, the bank may as well give you additional discounts on the interest rate. Try your luck & just ask for it!
Lastly, before committing to home loans just be doubly sure of it as sometimes banks may charge you a cancellation fee. So, take fully informed financial steps.