5 Important Facts about Mortgage Loans You Should Know
Singapore property prices are permanently elevated mainly because land is scarce and incomes are reasonably high. However, Singapore has one of the highest home-ownership ratios in the region, if not globally.
The government has put in place sufficient measures to make home-ownership affordable to the populace. With this in mind, it is crucial for any aspiring homeowner to know some vital facts about mortgage loans and get the best of the market.
Below are five essential facts you should know about mortgage loans.
When checking on your financial ability, banks will compare your annual income against your commitments and factor in your ability to carry a debt burden. The outcome is often described as the Total Debt Servicing Ratio, or the TDSR, which is capped at 60 percent of your income.
You will notice that public housing schemes are more stable as you compare mortgage loan rates. However, applicants also go through another income verification ratio. Known as Mortgage Servicing Ratio (MSR) it’s a ratio of the monthly mortgage repayments compared to your monthly income. It is capped at 30 percent of your income.
Other eligibility clauses include age and nationality.
Banks Charge Different Fees and Interest Rates
Singapore is a market economy. Banks operate freely with the regulator role spelt out. Lenders are free to package their product in a way they see as best suited for the market. Lenders charge different interest rates, sometimes on very similar products and fees. There is cut-throat competition in the pricing of loans as well as other services that are necessary for mortgages such as insurance.
When you compare housing loan rates, look out for features such as the valuation fees, legal fees, insurance fees as well as interest rates.
Types of Interest Rate
Interest rates attract more attention than any other parameter when people compare mortgage loan rates. After all, it’s how the bank intends to make money from you over a long run.
Banks have two main interest rate offerings for their mortgage products, either fixed interest rates or floating interest rates. Fixed interest rate mortgage loans are best suited for the highly risk-averse. Less risk-averse clients go for the floating interest rates. Floating rates are pegged on the benchmark of SIBOR or SOR rates. But if you are partly risk averse, go for a SIBOR based mortgage loan which is less volatile than the SOR.
Interest Rate Trends
If you are good at reading about interest rates and have some reliable sources to forecast, you could benefit from interest rate trends, especially when refinancing or re-pricing your home loan. If the interest rates are dipping or rising, you could refinance at an opportune time to and make the most of sunken rates or avoid higher rates. Nevertheless, when you compare mortgage loan rates in Singapore, fluctuations in the industry don’t matter that much. Instead, focus on the spread and seek financiers who will offer you the best mortgage product at the lowest spread.
Other Loan Conditions
As you compare housing loan rates, make a point to examine other loan conditions. They include lock-in periods, pre-payment penalties, legal and insurance terms and other subsidies. These conditions may curtail your flexibility in the future if you consider refinancing the loan.
To conclude, banks may entice you with different offers and appealing product features. However, a firm foundation in the facts above will enable you to compare Singapore’s mortgage rates objectively and get the best deal.