Property prices in Singapore are on the rise and with so much money at stake, choosing the right home loan becomes an important process in making that dream house yours. After all, you will need sufficient funds before you can call that apartment yours. Here are 5 things that you need to look out for before signing the papers.
There may be a whole range of mortgage loan schemes available in the market but that does not mean that you are entitled to every single one of them. First and foremost, regardless of which bank loan you are looking at, you must be at least 21 years old to be able to apply for it. The loans’ requirements then vary according to individual banks and whether the loan is for a new purchase or for refinancing purposes. Areas that banks consider include your nationality and income. The Total Debt Servicing Ratio (TDSR) is used to calculate your maximum loan amount. A ratio of your debt to your income, the TDSR is capped at 60% of your gross monthly income. For example, if you and your spouse have a combined income of $12,000 each month and your total debt is S$5,000, your TDSR threshold will be S$7,200 (60% of $12,000), and the monthly repayment of your home cannot exceed S$2,200, the difference between your TDSR threshold and your total debt.
Type of Interest Rate – Fixed vs Floating Interest Rates
Mortgage loan rates can be fixed or floating. For a fixed interest rate scheme, the bank will guarantee you a fixed rate over a period of the loan. This interest rate is locked in and will remain the same despite any changes to the market. Because of the stability that it offers, fixed interest rates are usually higher than that of floating interest rates.
On the other hand, floating interest rates are usually pegged to a benchmark rate. In the case of Singapore, they are usually pegged to the Singapore Inter Bank Offset Rate (SIBOR) or Swap Offer Rate (SOR). SIBOR is an interest rate that banks in Singapore charge to each other while SOR, similar to SIBOR in many ways, reflects the exchange rate between the Singapore Dollar and the United States Dollar. As a result, the rates fluctuate according to market conditions.
As a rule of thumb, you should go for fixed interest rate schemes when market conditions are favourable but expected to increase in the near future and choose floating interest rates when interest rates are expected to decline in the next few years.
Length of Loan Tenure
It may be tempting to stretch your loan tenure so that you do not have to fork out so much money every month. If you are tight on cash, then this may work out for you. However, if you do not have other debts of big amounts and have more than enough cash, then you may want to consider a shorter loan tenure and make yourself free from debt earlier. After all, this will mean you pay less interest and save more money! Nevertheless, it is important to consider your financial situation as a longer loan tenure may lessen your financial burden.
Usually ranging from one to three years, the lock-in period not only determines the number of years you are guaranteed a specific interest rate, it is also the length of time where you have to keep your mortgage with the bank. A prepayment penalty is incurred if you choose to pay off your loan in advance, refinance your property or sell your property during this period. The penalty fee ranges from 0.75 percent to 2 percent of the loan amount redeemed. A cancellation fee is also incurred should you choose to back out of your bank loan before the disbursement of your loan amount. The cancellation fee is usually about 0.5 percent to 2 percent of the loan amount cancelled.
A mortgage loan does not just involve paying for your house and the interest fees involved, it also includes buyer’s stamp duty charges, additional buyer’s stamp duty fees, valuation fee as well as legal fees for the preparation of any necessary documents.
Buyer’s Stamp Duty (BSD)
BSD is a tax on documents relating to the purchase or lease of a property and has to be paid by the buyer within 14 days after the date of the Sale & Purchase Agreement or the Tenancy Agreement if the document is signed in Singapore. It is a tax paid on the acceptance of Option to Purchase (OTP) or Sale & Purchase Agreements (S&P) which are documents prepared and signed when you purchase a property. The BSD is payable on the actual price or the market price, whichever is the higher amount.
Additional Buyer’s Stamp Duty (ABSD)
The ABSD was introduced in December 2011 and is to be paid by certain groups of people who buy or acquire residential properties on top of the existing Buyer’s Stamp Duty. For example, for Singapore Citizens, ABSD amount of 7% has to be paid for the second property purchase and 10% for the third and subsequent property purchases. In the case of Singapore Permanent Residents and Foreigners, ABSD must be paid for the first property purchase. The amount is 5% for Singapore Permanent Residents and 15% for Foreigners.
These fees are also paid to the lawyer to carry out necessary due diligence on the property, and usually cost around S$2,500 to S$3,000 when using a bank-appointed lawyer.
The 5 items mentioned in this article are just a small fraction of the pie. In reality, there are many more aspects to consider, from which benchmark to use, to whether the benchmark should be based on 1-month or 3-month and much more. In order to grasp a better understanding of the mortgage loan industry and get the best savings, it is important for you to do your homework. However, we understand that there are over 20 banks out there and the amount of information is overwhelming. Why not check out Get Loan to find the best mortgage loan rates for you or Contact Us to get the lowest mortgage loan rates in Singapore now.