Mortgage Loan Singapore - Ask These 7 Questions First!
Many people in Singapore only take a mortgage loan once or twice in their lives. So when a banker says you can “feel free to ask anything”, there’s one problem—most people don’t even know what to ask.
To help you along, here are some “must ask” questions to put on your list.
1. Is this the cheapest mortgage loan I can get?
There can be hundreds of mortgage loans available in Singapore at any point in time. Out of all of these, it often comes down to just four or five options that are the cheapest for you.
For this reason, it’s important to compare different loans to get the best rate. Don’t just go to the closest bank you can find and assume the loans are all the same.
Since you probably don’t have time to compare all the loan packages, you can engage a mortgage broker for free. These brokers are specialists who can compare mortgage loan products from many different banks and advise property buyers on the best option to choose.
2. What is the interest rate like after the “teaser rates”?
For Singapore Interbank Offered Rate (SIBOR) home loans , it’s common for interest rates to be kept low during the first three years. However, the interest rate can jump significantly in the fourth year and beyond.
Some bankers may tell you this is no problem, as you can always refinance your loan—in other words, switch from one loan package to another. But you must remember there’s no guarantee you’ll find a better deal four years from now.
As such, always focus on the interest rate in the fourth year and beyond. As you will probably be paying your home loan for over 25 years, it’s the long-term rates that matter.
3. Should I get a Board Rate loan just because it seems so much cheaper?
A Board Rate loan is one in which the interest rate is wholly controlled by the bank. Some banks may be eager to point out their interest rates are much lower than the market rates, or that their rates have not changed for a long time.
However, you should be wary of the risk—accepting a Board Rate means your bank can increase your interest rate at any time. They don’t even need to justify it to you.
Think twice before accepting such a one-sided deal.
4. Should I use a SIBOR loan or Fixed Deposit (FHR) loan?
For a more extensive discussion on this, check out our previous article on different types of home mortgage loan rates . But as a quick summary:
Fixed Deposit Home Rate (FHR) loans are tied to the bank’s fixed deposit rates. For the bank to raise your interest rate, they would need to pay out more in their fixed deposits. As such, banks are disinclined to raise interest rates.
For SIBOR loans, the interest rate is determined by the median rate at which banks are lending to one another. SIBOR rates are monitored by the Monetary Authority of Singapore (MAS), and no single bank can control them.
In general—but not always—SIBOR rates will be more volatile than FHR rates. They can swing up or down more often than FHR rates, which have so far been more constant in Singapore.
Keep in mind, though, that because SIBOR moves in bigger swings, it will save you much more money if and when interest rates fall, as compared to FHR loans.
This can be a complex topic to understand, so do speak to a mortgage consultant in Singapore before you select your mortgage loan.
5. Is there a lock-in period?
A lock-in period imposes a penalty if you try to refinance (switch loan packages) within the lock-in period. The lock-in penalty is usually 1.5 percent of the undisbursed loan amount, and it’s almost never worth paying.
Lock-in periods often last from three to five years. While mortgage loans with lock-in periods may be a bit cheaper, you have to consider the risk. You won’t have the flexibility to switch to a cheaper loan package if interest rates fall during the lock-in period.
6. Do I meet the Total Debt Servicing Ratio (TDSR)?
Your monthly mortgage loan repayment, in addition to all your other monthly debts—for example, personal and car loans—cannot exceed 60 percent of your monthly income. This is due to the TDSR framework introduced by MAS.
Following the TDSR framework, if you earn $7,000 per month, your total debt repayments cannot exceed $4,200 per month. If you have a variable income source, such as sales commissions, your monthly income will be considered to be 30 percent lower for the purpose of TDSR calculations.
Note that, for variable repayment loans such as credit cards, the minimum monthly repayment is used to determine your TDSR.
Breaking the TDSR does not mean you cannot get a mortgage loan in Singapore—it means you have to borrow a lower amount or take a longer loan term. For example, you can make a bigger downpayment to reduce your monthly repayment, or you might have to extend your loan tenure.
7. Am I happy with the bank’s valuation?
We’ve discussed property valuations in the past, but here’s a quick explanation.
The higher the property valuation, the more the bank can lend you for your house. This is because the maximum you can borrow is up to 75 percent of the property price or value, whichever is lower.
If the bank’s valuation is much lower than the seller’s asking price, accepting their home loan may mean a heftier cash outlay. It’s a good idea to contact a home loan mortgage broker to help you find the best valuation.
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