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Buying a home is the first step in making a huge financial commitment. The second step is to choose the most suitable mortgage loan for your new home.
A mortgage loan is a home loan whereby the lender (banks) will be using your assets as collateral while lending you a sum of money. There are fixed or floating interest rates, loan periods, grants, lock-in periods, and more to consider when choosing a mortgage loan. As such, we have three pointers which you should do and consider before taking up a mortgage loan.
1. Loan amount and loan tenure
When filling up the form to apply for a loan, you will be asked about your income. This will be used to assess your ability to repay the loan through Total Debt Servicing Ratio (TDSR). TDSR limits the percentage of loan, which the borrower can take up, to 60%. This includes existing loans and the one that is being applied for.
Most loans typically have a maximum tenure of 35 years. It depends on the financial institute that is offering the bank loan and the borrower’s age. In order to enjoy the full 35 years of loan tenure, you will have to be 30 years old or younger when applying for the loan. A longer loan period would mean that the monthly repayment is lesser, but the total amount will definitely be larger as compared to a shorter loan tenure.
Fixed interest rates are usually refreshed every two to five years. Most people who take on a fixed interest rate prefer stability and do not want to put too much focus on the rising or falling interest rate. This would be the most suitable during a period of low rates so that the rates can be kept low for a few years.
Floating rates are pegged to Singapore Interbank Offered Rate (SIBOR) in most cases. The rate will be refreshed every one or three months, depending on the type that was being taken up. Though SIBOR might be replaced with Singapore Overnight Rate (SOR), SIBOR is still one of the most transparent rates.
3. Fees, subsidies, downpayment and penalties
The interest rate of the mortgage loan might be something that you will notice first, but do not forget about the upfront fees and other charges. These include: legal fees, valuation fees, cancellation fees, and more.
Subsidies are also available, though it comes with a limit and its only applicable to refinancing.
For bank loans, borrowers will have to place a down payment of 25% of the purchase price, and a minimum of 5% has to be in cold hard cash. Penalties for paying a mortgage loan before the lock in period ends will incur a penalty of up to 1.5% in most banks.