There are more than 112 different housing loan packages on the market. What are the things you should watch out for in shopping for the best and most suitable home loan for you? Do not fret, under which we share with you some useful tips on home loan shopping.
What is the penalty term of the loan package?
For example, if you are going to sell this property within the next 2 years, you can choose a housing loan package with a lock-in period of around 1 year or no lock-in period.
What is the chance of selling the property before the timely property receives Profession Permit (TOP) or before the loan is paid in full? If you sell the property before the loan is paid in full, you can find a housing loan package with a lower cancellation fee. Minimal cancellation fee is a particularly important feature of property speculators, who usually sell those within a short holding period.
What do you think is on interest rate trend in the next 2 years?
If you feel that interest rates have peaked and are not going to go up in the next 2 years and may also fall, consider getting a floating rate housing loan package rather than a fixed rate housing loan package.
You can also choose to have a package of interest rates tied to rate swap offer or Good Finance offer, where any drop in interest rates would result in lower interest rates on your housing loan. Because sometimes, even if Good Finance offer prices fall, the bank may not lower interest rates on their housing loan.
Flexibility on partial repayment?
Some packages introduce surcharges on partial repayment within the lock-in period. If you are likely to help make partial repayment in the next 2 years, consider getting a partial repayment package with no penalty fee.
What is the best period for the loans?
Usually, the longer the loan period, the more interested you end up paying. As a general guide, do not stretch loan period of more than 25 years. For loan periods that are over 25 years, say 35 years, you would end up paying much more interest compared to a 25 year loan.
Let us illustrate with an example, where loan amount is S $ 300,000 and average annual interest rate of 4% over the Housing Loan:
In this example, if the loan period is 20 years, the monthly rate is S $ 1,817.94. On the other hand, if the loan period is up to 25 years, monthly rate will increase by up to $ 234.43 to $ 1,583.51, and total interest paid will be around $ 42,240.93. However, if loan period is stretched out another 10 years to 35 years, loan tranche only increased by S $ 255.19, in which the total interest paid increased by $ 75,600.27.
Another way of planning the length of a loan is not to extend the loan period beyond your retirement age. For example, if you plan to retire at the age of 60, you shouldn’t have a loan period that lasts until you are 65 or 70.
What is the difference in mortgage interest rates on property under construction vs. completed property?
Currently there is no big difference in interest rates on home loans whether the property is completed vis-a-vis property under construction. In fact, some banks offer the same packages, whether for completed or under construction properties.
What are the refinancing penalties and costs, and under what circumstances should a borrower consider refinancing?
If your loan is out of the lock-in period, the only cost of refinancing is only the legal cost of refinancing. Usually, banks are legal subsidy. So, depending on the loan amount, the full legal cost of refinancing may be subsidized by the bank in full and the cost of refinancing may be zero!
If your home loan is still in the lock-in period, we will help you calculate whether the interest of refinancing savings in another housing loan package, the lower interest rate is more than enough to refinance costs, too the repayment penalty and reimbursement of the statutory grant.
The interest savings you get on refinancing can amount to a decent sum of tens of thousands of dollars. So choosing a home loan pays off on the right. With the tips above about choosing a home loan, you will almost certainly be choosing the right housing loan package that suits your needs and helps you save money.