There are more than 112 different Housing Loan packages in
the market. What are the things you should watch out for in
shopping for the Best and most suitable Home Loan for
yourself? Fret not, below we share with you some Useful
Tips on Home Loan Shopping
What is the penalty period of the loan package? For
instance if you're likely to sell this property within the
next 2 years, you might want to choose a Housing Loan
package with a short lock-in period of say, 1 year or no
lock-in period at all.
What is the chance of selling the property before the
property receives Temporary Occupation Permit (TOP) or
before the loan is fully disbursed? If you may sell off the
property before the loan is fully disbursed, you might want
to look for a Housing Loan package with a lower
cancellation fee. Low cancellation fee is a especially
important feature to property speculators who typically
sell the property within a short holding period.
What is your view on Interest Rate trend in the next 2
years?
If you're of the view that interest rates have peaked and
are unlikely to go up in the next 2 years and may even
drop, you may want to choose a Floating Rate Housing Loan
package rather than a Fixed Rate Housing Loan package. You
can also consider choosing a package whereby interest rates
are tied to Swap Offer rate or Inter-bank Offer Rate,
whereby any drop in interest rates would be translated into
lower interest rates on your Housing Loan. Because
sometimes even when inter-bank offer rates drop, bank might
not adjust the interest rates on their Housing Loan
downwards.
Any flexibility on partial repayment?
Some packages impose penalty charges on any partial
repayment within the lock-in period. If you're likely to
make partial repayment in the next 2 years, you may want to
choose a package that allows partial repayment without
penalty fee.
What is the best duration for home loan?
Typically, the longer the loan period, the more interest
you end up paying. As a general guide, do not stretch loan
period to more than 25 years. For loan period that
stretches beyond 25 years, say 35 years, you would end up
paying much more interest compared to a loan of 25 years.
Let us illustrate with an example, whereby loan amount is
S$300,000 and average annual interest rate of 4% on the
Housing Loan:
In this example, if the loan period is 20 years, monthly
instalment is S$1,817.94. On the other hand, if the loan
period is stretched to 25 years, monthly instalment is
reduced by $234.43 to $1,583.51, and total interest paid
increased by about $42,240.93. However, when loan period is
stretched a further 10 years to 35 years, loan instalment
is only reduced by S$255.19 only, while total interest paid
increased by $75,600.27.
Loan Period 20 25 30 35
Monthly instalment $1,817.94 $1,583.51 $1,432.25 $1,328.32
Total interest over loan period $138,529.77 $177,770.70
$218,895.28 $253,370.97
Another way to plan the duration of a Home Loan is not to
stretch loan period beyond your retirement age. For
instance, if you plan to retire at age 60, you should not
be taking a loan period that stretches till you're age 65
or 70.
What is the difference in interest rates for mortgages for
property under construction vs completed property?
Currently, there is not much difference in interest rates
for Housing Loans whether for completed property vis-a-vis
property under construction. In fact, some banks offer the
same packages whether for completed or properties under
construction.
What are the refinancing penalities and costs, and under
what circumstances should a borrower consider refinancing?
If your Home Loan is out of the lock-in period, the only
cost of refinancing is only possibly legal cost of
refinancing. Typically, Banks provide legal subsidy. Thus,
depending on the loan amount outstanding, the full legal
cost of refinancing maybe fully subsidized by bank and cost
of refinancing can be zero!
If your Home Loan is still within the lock-in period, we
will help you to calculate whether the interest savings by
refinancing into another Housing Loan package which offers
lower interest rates is more than enough to offset cost of
refinancing, which may include repayment penalty and refund
of legal subsidy.
The interest savings you enjoy on refinancing can work out
to a tidy sum of tens of thousands of dollars. Thus, it
really pays to choose a Home Loan right. With the above
tips we share on choosing a Home Loan, you are almost
assured of choosing the right Housing Loan package that
suits your needs and helps you save money.
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Dennis is a Certified Financial Planner and has 15 years of
bank lending experience. He founded
http://www.HousingLoanSG.com - a Leading Mortgage
Consultancy Portal in Singapore. He is known as a Housing
Loan Expert and is often quoted in newspapers for comments
on Housing Loans. Please send your comments to
dennis@housingloansg.com or call him at +65 6737 8801
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