Competition amongst Singapore banks has led to various loans tailored to our needs. We share some tips on what to look out for before applying home loans in Singapore.
Does the Best Home Loan exist?
Though some home loan packages look so inviting that you decide immediately after making comparisons, the one with the lowest home loan rates is not necessarily suitable. Often, one will ask what the best home loan is currently. Instead, you should ask what your requirements are.
Here are 7 tips to take into consideration when comparing home loans in Singapore. Rates alone is not the deciding factor.
Fixed or Variable:
If you feel loan interest rates will increase, fixed rate mortgages might be better for you as it gives you a fixed loan interest rate that doesn't change even if market rates change. However if you think that the market-based rates such as SIBOR, SWAP/ SOR, fixed deposit will drop, floating interest rate packages could be a better choice. One inconvenience is you have to adjust the installments when SIBOR or SOR changes, as informed by the bank.
Interest only mortgage:
These mortgage loans let you pay only the loan interest amount for a specified period. You thus make small monthly payments for some time before you start to pay off the loan principal amount as well. This is a wise decision to leverage your finances to buy an overseas property that allows you a higher rental yield. MAS has banned interest only home loans for Singapore properties unfortunately.
Do your property research:
If this is your first property investment where you will be depending on rent to repay your loan, first find out more about the going rent in the area you intend to buy your house. Remember that if you plan to rent your house, it may lie vacant for some time. You thus need sufficient standby funds to pay your installments to avoid loan defaults.
You should know the holding period of the property, whether you are an home owner or property investor. Home loans in Singapore have a lock in period, ranging from zero to few years. Zero or smaller lock in period is appealing to short-term investors where they intend to sell the property within few years outside the lock in period. Selling the property is in effect, similar to fully redeeming your loan and this action usually attracts a fees charged by the bank if the mortgage is within the lock in period. Some banks in the past have launched mortgages that waive this fees if one make a full redemption via sale of a property. With the recent cooling measures in Singapore for residential properties, a longer lock in period may be logical since selling the property within the first 4 to 5 years will incur additional seller stamp duty (SSD) taxes imposed by the government. Mortgages with longer lock in period should has better perks, such as lower margin or spread or free fire insurance for more years.
Conveyancing legal firm:
Banks will have a panel of law firms that they work with. If one prefers to use a law firm not on the bank's panel, the bank will impose additional fees, above the typical legal conveyancing fees. This means you will have to pay more to use this law firm. Hence, it's prudent to check with the bank if you intend to use your own law firm. Otherwise, there is no reason not to utilize any of the law firms on the bank's panel, whom have been vetted.
There are numerous housing loan terms where a lender can charge you more for your loan like processing, default, late payment, annual, cancellation, partial or full redemption and fall below fees. Lenders may subsidize the legal fees for refinancing Singapore home loans. Valuation fee is payable.
Banks may grant a legal fee subsidy when one takes up a mortgage loan for the private property or HDB flat. This legal subsidy goes towards the legal conveyancing fees charged by the law firm. Usually, the subsidy ranges from 0.4% to 0.5% of the loan amount, or up to $2,000, whichever is lower. Some banks may have tie ups with law firms that covers fully the legal fees even if the legal subsidy is insufficient to cover the legal fees. As long as your loan amount meets the criteria, you should receive sufficient subsidy to offet the legal fees.