Online Calculator | How To Select Your Singapore Property Mortgage

How To Select Your Singapore Property Mortgage

Choosing a mortgage can often be a little puzzling. There are such a lot of options to think about: fixed or floating interest rates, loan duration, lock-in periods, aid, penalties and other special features. There’s no one “best” mortgage out there “it actually depends on your needs and preferences.

Here are the key options you want to consider when making your decision:

1) Loan amount

The local banks often give a loan of at least 80% of the property price for first time house purchasers, but the particular amount will depend upon their evaluation of your capability to repay the loan. They generally look at a debt servicing proportion of 35-50% as a ceiling. To work out this ratio, they sum up your long-term liabilities (including the potential mortgage payment) and divide that by your monthly earnings. You can try the price and home loan payment calculators at Loanguru to guess the maximum that you can borrow and your potential regular payment.

Also be aware that the bank will only lend you up to 80% of the LOWER of your price or their own internal valuation. So if your purchase price is above their valuation, you'll have to top up the difference in readies. As a best practice, you should generally get an indicative valuation and in-principle approval from a bank before you commit to a purchase.

2) Loan term

The loan term is the length of time that you take to utterly pay back the loan. Loan terms usually go from 10 to 35 years. The longer your loan period, the littler the regular repayment you want to make, but the higher the total quantity of interest you will ultimately pay.

Also note that your age might be a limiting factor “banks will typically cap the maximum term up to the age of 65. So if you're 50 years of age, you may only be given a loan period of at least 15 years. Young customers looking to maximise the amount they can borrow will typically choose a 35 year loan period.

3) Fixed or floating rate

Fixed rates offer the borrower security and stableness as the rate does not change over a specific period. As rates are currently extremely low, if they rise you will be shielded from upward adjustments of your monthly mortgage payment. But this comes at a price “fixed rate packages sometimes charge higher interest than floating rate packages.

Borrowers who are sure that rates will fall or stay low for a substantial period of time can go for floating rate packages as they can get lower IRs up front and their standard payments will fall if IR’s fall.

For floating or variable rate packages, they're typically interlinked to either of the 2 major baseline rates: Sibor and the Swap Offer Rate (SOR). These rates are typically influenced by US interest rates and Singapore bank system liquidity. But don't presume that they'll always stay at the lows they currently are at (e.g. The SIBOR is around 0.5% now) “in 2007 they were as high as 3.6%! As a rough guide, you should look at your standard payments using rates of 4% to make sure you can still service your mortgage in case rates spike up.

4) Other special features

Some loans have an interest offset feature, where deposits at the bank can be employed to negate the loan sum so you only need to pay the interest on the difference. For borrowers with big amounts of money that they'd like to keep available for other uses at a minute's notice (e.g. Making an investment in the stock market) this could be a great option.

Some banks also offer interest-only packages, often on a case-by-case basis. For these loans, you just have to pay the interest amount for a cited period of time, and after the loan will revert to a normal interest and principle loan. This option may be satisfactory for financiers who need to reduce the cash outflow in the interest only period.

5) Aid, lock-in period and penalties

Most loans come with some aid including the legal, valuation and fire insurance charges. When comparing mortgages, borrowers should check what the various charge subsidy amounts are. For instance, there is typically a cap of $2,000-2,500 on the legal charge, and if your legal fees surpass those you will have to top up the difference.

The lock-in period you must select is dependent on your expectation of when you may sell the property and also on your perspective of where rates are going. Sometimes the shorter the lock-in period, the bigger the interest rate. But if you pay back the mortgage within the lock-in period, you often need to pay a penalty of anywhere from 0.75% to 1.5%, which is substantial. Some banks can surrender the penalty if you're selling your place (in opposition to just repaying the mortgage), so be sure you check if they are going to include this clause.

Here's a tip to save you cash “occasionally the bank can provide you with a further discount off their publicized interest rates, particularly if you've been a longstanding buyer. Just ask! I have known people who've gotten a 0.05% discount “that adds up to some significant money.

If you should happen to feel engulfed by all of the different options above, you may consider engaging the services of a financial consultant, who will provide help to filter the right packages for you primarily based on your requirements. You shouldn't need to pay them any charge as they are going to get a commission from the bank if they can successfully prepare a loan for you. Cheerful mortgage shopping!

Hope you enjoyed reading this Singapore property market article!

Propwise.sg, a top Singapore property blog, is devoted to helping you understand the estate market and make better choices. Visit us to read more Singapore property market articles.

Filed Under Online Calculator | Leave a Comment

Tagged With

Comments

Leave a Reply