The main purpose of taking a home loan is to raise funds for purchasing a property that you cannot afford to pay all at once. The home loan market is very competitive nowadays, so here are a few important things that you need to consider when you decide to take a home or mortgage loan:
Loan to value(LTV) ratio
The Loan-to-Value ratio is the percentage of a loan compared to the value or price of the property. A bank can grant you maximum 80 per cent as per LTV. Suppose, you buy a flat (resale) at $620,000, and the value of the property is $600,000 (the difference is known as COV and it is quite common for resale flats). So, the maximum bank loan would be 80% of $600,000. The LTV often varies based on your outstanding home loans, the age of the property, your age and your credit score.
Before comparing among interest rates to find the best mortgage loan rates in Singapore, you have to know what are the type of rates used in the market. The interest rates are fixed in most cases to the SOR (Swap Offer Rate), SIBOR (Singapore Interbank Offered Rate), or board rate (set by the bank). SIBOR loans generally follow a pattern, with teaser rates (lower rates) in the first three years, and a higher rate thereafter. SOR is like SIBOR, but SOR is commonly used for commercial properties and its rate depends on the exchange rate between US dollar and Singapore dollar. Finally, there is the board rate, which is determined by the banks. The FHR (Fixed Home Rate) is an example of it.
Lock in period
Do you know about the lock-in clause? You cannot refinance your mortgage loan for a period of time if there is a lock-in clause. There will be a penalty if you plan to refinance under a lock-in clause. Often the lock-in clause results in lower rates of interest and by default, a lock-in period is always a fixed rate period.
Term and duration
You have to understand the term and duration of a mortgage loan as the interest rate varies based on the tenure of repayment of the home loan. You have to choose the most viable option for you.
You have to choose the amount of your monthly installment based on your personal cash flow. Many borrowers do not think about monthly installment, but this is very important for making your personal financial plans.
Legal fee subsidies
The application of a home loan involves some fees for the legal paperwork. It varies from law firm to law firm and is known as the conveyance fees. You may receive a subsidy from the bank for the fees.
It is obligatory to buy fire insurance in Singapore. You can use your own insurer, although most banks have their own insurers.
It is really crucial that you think carefully and try to gain some knowledge about the home loan options so that you can find the best offer for you.