For the majority of people, it’s almost impossible to buy a home without a mortgage loan. Putting hundreds of thousands of dollars together and buying a home is a privilege for only a few people.
Homebuyers scrape together as much of the deposit as possible, and they collect the rest of the money from credit unions or banks. Luckily, many lenders are offering a range of mortgages. You will have a suitable option whether you’re buying your first home, or moving up the property ladder, or having to refinance housing loans in Singapore.
Most of the mortgages are of similar type (repayment) nowadays: you have to pay interest every month on the part of the capital. Your mortgage debt will be repaid at the end of the term, and it usually takes 25 to 30 years.
You can also consider the interest-only mortgage (currently not available in Singapore due to regulations. Its available for overseas property loans) as some lenders offer it which means your monthly instalments will cover only the interest. At the end of the maturity period, you’ll have to repay the initial borrowed amount in full.
It may seem convenient the interest-only mortgage as you’ll have to pay lower monthly instalments, but you should have a solid plan to back the full loan amount after the maturity period. It’s a good idea to consider a repayment loan.
Advantages of a mortgage loan
A mortgage helps you get the ownership of your home. For many of us, it can be said that the mortgage is the biggest loan in our life. We incur a huge debt for years once we sign for the home loan. It’s never been easy to convince the lender and take a home loan. However, as the borrower gets the chance to pay the loan over many years, it certainly becomes more affordable and manageable for them.
A mortgage loan is also a cost-effective way of borrowing money as the interest rate is relatively lower in comparison with other loans because the loan is secured against the home. The lender or bank has the security because if everything goes wrong and the lender cannot repay, the bank can still sell the property and collect the loan.
Disadvantages of a mortgage loan
You will have to pay back a lot more money than the actual borrowed amount. You’re carrying a big amount of debt over a truly long period. This is probably the most obvious disadvantage of a mortgage. Another drawback is that you will either pay off the whole amount with interest on time or you might lose the ownership of your home.
The borrower needs to work hard for years to pay off the loan, and if the homeowner fails to pay back the loan amount, the lender will repossess the home. The lender or bank will sell the home and collect the money. It may seem the monthly instalments are reasonable for you, but the actual payment you will make over the years will be huge.