Home loans are not easy to manage as there are many clauses, numbers, terms and conditions. Many people agree to them without a proper understanding just to get the process over with. However, if you know some basics about home loans, it can be quite simple. Here are a few things that you need to know:
The Loan-to-Value is the certain percentage of property value or price (whichever is lower) that determines the amount the bank lends you. A bank can grant you maximum eighty per cent LTV. For instance: You buy a flat at $720,000, and the value of the property is $700,000. So, the maximum bank loan would be 80% of $700,000, which is $560,000. The LTV varies based on your outstanding home loans, the age of the property, your age and your credit score.
The Interest Rate
Interest rates in Singapore 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 the commercial properties and its rate depends on the exchange rate between US dollar and Singapore dollar. Finally, the board rate is set by the banks. The FHR (Fixed Home Rate) is an example of a board rate.
A fixed interest rate doesnâ€™t change. However, the interest rate is fixed for the first two years, then it will follow SIBOR which may gradually lead to increases. For home loans, there is no perennial fixed rate.
Interest rate period
Youâ€™ll see the interest rate period under â€śTypes of Rate/Rate Typeâ€ť such as â€śOne-month SIBORâ€ť, â€śTwo-years SIBORâ€ť, etc. Here, one-month SIBOR means the interest rate will be adjusted every month.
You cannot refinance your 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.
In the loan, it involves some fees for the legal paperwork. It varies law firm to law firm and known as conveyance fees and you may receive a subsidy from the bank for the fees.
Sometimes a reliable third party is engaged by the bank for a valuation of the property and the fee is generally around $400 to $500 for it.
Late payment fee
There is a fine for missing payments on your loan, and it often varies between banks. You can call them to ask about it.
In Singapore, it is obligatory to buy fire insurance. You can use your own insurer, although most banks have their own insurers.
Lastly, you should know that home loans change almost every day as it is a highly competitive market. Lenders frequently adjust their offers for home loans to draw more customers. You should always compare housing loan rates in Singapore to find the best home loan for you.