5 Important Things for Consideration in Deciding for a Home Loan

When deciding on a home loan, you should take things into consideration. For example, you have to look at the loan term, penalties, subsidies, lock-in periods, fixed or floating rate, then other special features offered by the bank.

Learn more on ROSHI Singapore.

Here are the five essential things to think about before diving into home loan procedures:

The Length of the Loan Term

The typical loan term is ranging from 10 to 35 years. It would be more favorable to the bank if you are still young and go for a 25 to a 35-year length of the loan term.

Of course, when you choose a longer-term, you have a smaller amount of payment monthly, but the interest rate is higher.

The Number of Subsidies, Penalties, and the Lock-in Periods

A home loan comes with subsidies, such as fire insurance, valuation, and legal fees. For legal fees alone, the price ranges from $2000 to $2500.

When choosing your lock-in period, it is crucial to think about what will happen in the interest rate and when you will sell your property. Beware that selling your house within the lock-in period comes with a 0.75% to 1.5% penalty.

The Difference Between the Fixed and Floating Rate

Most borrowers opt for the floating rate since the interest is lower. Also, they believe that interest rates will stay the same even after the years. Nonetheless, the fixed-rate gives security and stability to the borrower—that when the interest rate goes drastically high, he will pay lower than the current price.

US interest rates and Singapore banking system liquidity affects the interest rates. The standard is based on the Singapore Interbank Offered Rate (SIBOR) and the Swap Offer Rate (SOR).

The Loan Amount

Before sending the down payment for the property, it is essential to know how much the bank can loan you. It depends on the ratio of your monthly income and existing debt obligations computed by the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).

The existing standard loan accepted by TDSR is not beyond 60% of your monthly income. So, before applying for a new home loan, make sure to pay as much as you can. Mostly, banks lend you based on their internal valuation or your purchase price. They will choose the one lower in value.

If the property’s purchase price is higher than the valuation, you have to add cash as a top-up.

The Special Packages, Discounts, and Promotions

Sometimes, banks are offering discounts and promotions. Some of the special packages they offer are the interest-only packages and the interest offset feature.

With interest offset, the bank uses the deposit on your account to offset your loan’s interest rates. On the other hand, the interest-only packages are ideal for investors who aim to minimize the cash outflow during that period.