Facts to Consider When Picking a Home Loan Package
In a free market, the beneficiaries of competition are often the customers. But it’s not always a rosy picture, especially when the commodity must be of a high quality and requires substantial financial commitment.
Such is the dilemma prospective homeowners’ face when they compare housing loan rates Making a wrong choice will translate to several months of opportunities lost. Therefore, buyers ought to consider carefully before picking a home loan.
But what are the most important factors to consider? Buyers need to compare mortgage loan rates in Singapore, the spread, scrutinise the loan conditions and review their ability to accommodate debt.
Here is more on these crucial factors.
Interest Rate Type
When you compare mortgage rates in Singapore, you should not just check out how high or low the interest rate is, but also check whether it is fixed or floating rate.
Floating rate mortgage loans are lower than fixed rates. However, they fluctuate, and you have to go deeper to understand the benchmark the bank is pegging the interest rate to. Is it the Singapore Interbank Offered Rate (SIBOR) or Swap Offer Rate (SOR)? SIBOR is a less volatile benchmark as compared to the SOR. Pegging the rate on SOR is for the less risk-averse because fluctuations can translate to significant savings or hikes in interest payments.
On the other hand, fixed-rate loans mean the interest rates stay the same over a predetermined fixed period. They are usually higher than the floating rates, to cushion the financier against market rate fluctuations. Choosing a fixed rate loan gives you some peace of mind. You can plan your finances with precision despite the higher cost.
When you compare mortgage loan interest rates between different banks, you will notice that although the SIBOR or SOR is the same across the industry, various banks still offer different rates. The Spread is the difference between the value of the benchmark rate and how much the bank is charging you. It is the mark-up of the bank and how they make money.
It would be easy to go for home loan package with the lowest spread, but before you do that be sure to check the fine print and other conditions for the loan.
Other Conditions on the Loan
It is prudent to compare housing loan rates and the spread, but they are not the only aspects to consider when picking a home loan package. There are other loan conditions to consider such as the lock-in period, applicable fees and other charges as well as checking if the bank offers subsidies and their terms.
Therefore, picking a home loan package calls for more than just comparing mortgage loan rates, it calls for a check of the entire package.
Your Ability to Accommodate Debt
Finally, as you consider the above aspects and before you take the plunge, check your wallet and bank account once more. Consider your income and ability to service the debt. Bankers refer to it as the Total Debt Servicing Ratio (TDSR). It is a proportion of how much of your monthly income you allocate towards servicing debt.
The standard practice in Singapore, also enforced by the Monetary Association of Singapore (MAS), is that your debt obligations should not exceed 60 percent of your gross monthly income.