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re 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 [link widoczny dla zalogowanych], 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 />
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 [link widoczny dla zalogowanych],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 [link widoczny dla zalogowanych], the full legal cost of refinancing maybe fully subs