Getting Ready to buy a home

Things to consider

It’s always a good thing to prepare yourself when you plan to buy something as crucial as your own home. There are few things you need to know if you’re going through the home buying process for the first time.

Here are a few important factors that you should keep in mind before signing on the dotted line:

  • Are you planning on any major life changes, like starting a family or changing a job, in the next 3-5 years?
  • Do you have a stable income for the next 3-5 years?
  • Are you able to put away some money each month for your loan repayments?
Your credit score

You must know your credit score before you’re start looking and applying for a mortgage. Credit score plays a crucial role in determining your mortgage approval and ultimately the loan you end up with.

How much you actually can afford

You’ll have to make monthly mortgage payments, so it’s essential to decide how much you can afford. Keep in mind that your monthly costs for housing include property taxes, homeowners insurance, maintenance and utilities. Any assumption of your affordability must go beyond interest and principal payment and include these extra costs.

Type of mortgage loan you want

You have to do your homework as there are loads of mortgage loan options available in the competitive market. Make sure that you have proper knowledge about mortgage loans before making decision and agreeing to an offer. Consider your present financial situation and be realistic about your future financial conditions. It would be wise to choose a mortgage loan unless you plan on living in the place for a shorter period of time so that during resets, it won’t put you in financial crisis.

The interest rates

Knowing the different interest rates offered is a crucial step when choosing the best mortgage loan option. In Singapore, 2 main types of interest are offered. One is a fixed interest rate, agreed on by the bank. It stays constant throughout the agreed duration of the loan, usually the first few years. The other option is a floating interest rate, which is pegged to the performance of a benchmark rate. If used at the right times, the floating interest rate can save the borrower  a lot in paying off interest. It is crucial to know your options for your first mortgage or if you are looking to refinance housing loans in Singapore.

Calculate your maximum loan amount using our TDSR Calculator.

Type of mortgage loans

The most popular forms of housing loan packages in Singapore are the fixed rate and floating rate, which are pegged to the Singapore Interbank Offered Rate (SIBOR). However, many housing loan packages come with various lock-in periods ranging from no lock-in to a one-year, two-year or three-year locking. The lock-in period means the amount of time that you are committed to keep your loan with that Bank. So, what happens when you end up refinancing your housing loan in Singapore while you are still within the lock-in period? Typically, the bank will charge you a lock-in penalty. This lock-in penalty is typically in the region of 1.5% of your outstanding loan amount. Below are some of the features of various forms of housing loan packages:

Fixed rate package

Fixed rate packages are exactly what they mean – fixed for a predefined number of years. A typical fixed-rate package would remain fixed for a certain number of years before it switches to a floating rate package. A major benefit of using fixed rate packages is that it allows you to determine your cash flow during its fixed tenure.

Floating rate Package-SIBOR package

One of the most commonly used floating rate package is the SIBOR package. What this means is that the rate at which banks and Singapore lend each other money is a transparent rate that is determined by market forces and published by the Association of Banks in Singapore. You can find the daily SIBOR rate in the Business Times. A typical SIBOR package would have the lock-in period as well as the premium that is being charged above the SIBOR. Let’s take a look at the following example: where the current three months interest rate is 0.48%, the interest rate that you will be charged would be this 0.48 % + the premium of 0.75 %, thus making it a total of 1.23%.

As this current 0.48% rate would change every three months, the floating interest rate would also change.

Floating rate Package-FD package

Another commonly used floating rate is the Fixed Deposit (FD). It is the rate determine by the respective banks for their packages. Let us take a look at the following example, where the current 9 months FD rate is 0.80%. The interest rate that you would be charged would be this 0.80 % + the premium of 0.55%, thus making it a total of 1.35%.

Hybrid package

A hybrid loan is actually a combination of both fixed and floating interest rates. Such loans start out with the fixed interest rates for a certain period of time (i.e. 1 to 5 years) after which the mortgage then moves to the floating interest rate package.

Finding the best mortgage rates

If you are looking to procure a home loan, you have landed on the right article. Read on to find out you can find the best mortgage loan rate.

HDB Mortgages

Borrowers eligible for HBD home loans benefit from reasonably stable interest rates pegged to the CPF rate. Although there are strict qualification criteria and fewer repayment options, HDB loans are best for people with less disposable income with the added bonus of stability.

Bank Home Loans

If you don’t qualify for a HBD loan, or if you don’t prefer the option, banks offer mortgages as substitute options for aspiring homeowners. Banks provide both fixed and floating mortgage rates. Also, banks offer flexible repayment terms, and each bank is free to determine the interest rates for their product. In most cases, the prices are pegged on indexes such as SIBOR and SOR.

Shop Around

You may have a good idea of the home loan package you like, but it is advisable to spend some time gathering as much information on other options available, to compare housing loan rates in Singapore.

You can ask family or friends for information or better still, visit trusted experts. A housing loan calculator will help you shop around for favourable rates and improve your chances of finding a perfect fit.

Decide on Your terms

Many people only focus on the interest rate and turn a blind eye to other critical conditions of a mortgage. Terms including loan tenure, penalties applied on redemption, rate style, whether fixed or variable rates and its lock-in period should influence your decision.

Analyse Other Fees You Have to Pay

Jot down all other costs or subsidies that come along with the mortgage facility and contrast with the interest rate offered. Check out whether the costs you will incur significantly affect your loan flexibility and make a decision on which is the preferable option. For instance, a bank can offer lower rates but have a longer lock-in period and higher penalties when you want to transfer your facility to another lender, thus restricting you from taking advantage of lower interest rates or competition.

Speeding up your mortgage process

The mechanism of mortgage approval is a tedious, yet rather methodical, and it demands a calculative step by step approach. Here are a few most effective ways that speed up the mortgage loan approval.

Keep no secrets – be transparent

The mortgage vetting mechanism is a tiresome and rigorous one, and there are ample ways that the lenders can use to unearth information that has been well hidden. Hence, it is best not to hide anything. Whether you take mortgage loan for the first time or refinance mortgage loan in Singapore, emphasise transparency and opt for full disclosure at the very first instance. Trying to cover up any credit mishap, hoping that it can never be unearthed, will jeopardise the entire process.

Be flawless in documentation

No matter whether you need to take a first-time loan or you need to refinance mortgage loan in Singapore, be flawless during documentation. Have a clear idea about what the lender needs and act accordingly. Make sure you are readily able to provide your lender with every bit of information that your lender requires the loan can be approved. Every approval of mortgage loan is highly document-centric, and most of the loan prospects are jeopardised due to inability to provide required documents in time.

Frequently asked questions

MoneyIQ makes it easier for home owners to find the best home loan for their purchases. Since 2009, we have been offering a transparent marketplace. Our home loan calculator ranked home loans by costs and never by the fees we received.

To start, simply fill out the form at the top of the page and get the home loan quotes quickly. Then compare home loans by rates, payments, total interests and fixed or floating (SIBOR or Board) rate. Choose the package you like and wait for the banker to contact you.


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