Singaporeans buy a lot of things in their lives but buying a house is probably the most expensive purchase we will ever make. There are many options to choose from where housing loans in Singapore are concerned. This does not mean that making a choice is easy. One must sift through the various options, carrying out comparisons until they find the best fit for them. In truth, most people can find the process overwhelming. The financial commitment is the biggest one they have ever made and they do not want to make a mistake. As such, they try to ensure that they do everything right.
Here are some steps to take that can help anyone looking for a mortgage make the right choice.
One should start by assessing their current situation. Prior to looking into the various loan options available, one should consider their current circumstances by considering the following factors:
- Ideal price range – Since the payments one will be making every month towards the mortgage are dependent on how much the home costs, one should use a mortgage calculator to figure out the home they can afford. This will generally be a price range and not a specific figure.
- Financial health – It is important to consider one’s current financial status. This includes considering how much one has in savings that can go towards a down payment, credit history, current debt load, income and the like. Of course if one has a high credit score, then he or she will most likely get better interest rates. Additionally, if one has lots of savings that can go towards the down payment, he or she will end up paying less on overall interest. Basically, private banks in Singapore offer mortgages with lower interest rates.
- Future plans – If one is looking to rent out the home, or will be moving a few years later, he or she must consider this and how it will affect mortgage payments. In the same breath, a person planning on living in the house for a long time may be able to look at mortgages that may be considered a bit riskier.
Review the available loan options. Having considered one’s financial health, it is time to look at the available loan options. There are several different things that one must consider, but the most important are the type of loan, the interest type and loan term.
- Type of loan – There are many different housing loans in Singapore. However, they can be lumped up largely into two groups: HDB loans and private loans. HDB loans are specifically for Singaporeans and can only be used to purchase a HDB flat. One must review the various restrictions that come with these loans before settling on this loan type. Private loans are offered by a variety of banks and come with less restrictions. It may be a good idea to carry out a comparison of the two loan types by reviewing the following factors:
- Interest rates
- Repayment amounts
- Loan to value limit
- Down payment
- Early repayment penalties
- Late repayment penalties
- Type of interest – Basically, the available options include a fixed interest loan and a variable interest loan. If one can handle higher risk, then an adjustable rate may be good. The rate can go up or come down, which means that the mortgage payments will also tend to fluctuate. Fixed rate is simply locked in where it is currently. If the rates go up, it will not be adjusted. Again, if they drop, the borrower will keep paying the higher interest rate. A fixed rate of interest is preferable to most because one can plan well in advance since the monthly payments do not change with time.
- Loan term – It is important that one figure out a comfortable loan term. Generally, most people consider 15-30 years when it comes to the term of the loan. A shorter term means larger monthly payments and lower interest paid overall. A longer term will give the borrower smaller monthly payments, but the amount of overall interest paid in the long term will be higher.
Lender comparisons and estimates – If one opts for a private or bank loan, then shopping for lenders is the next step. It may be a good idea to consult with family and friends and ask for recommendations, particularly if they took the same route. One can also be able to find loan comparisons online than can help narrow down their choices to 3 to 5 of the best lenders for them. With the list narrowed down, it is time to speak to the lenders and hear what they have to offer.
It is important to note that the lenders will all check the borrower’s credit in order to know which offer to make. Not to worry though, because up to 5 checks can be made without lowering the credit score. If there are unique requirements that you need considered, be sure to table them so that the lender can take those into consideration when offering you a loan.
Have a clear understanding of the loan fees and costs. Housing loans in Singapore and all around the world come at a cost. One of the main costs of a loan is the interest rate. It is important that one calculate how much he or she will be paying in interest in the long term. Paying a higher monthly amount will reduce that figure, as will a lower interest rate. The idea is to find a perfect balance.
If one is using a mortgage broker, then he or she should consider the brokerage fee. Other costs include the loan application fees, loan processing fees, and the various penalties. Most lenders charge a percentage for late payments. It is important to know what this percentage is and when it kicks in. Additionally, they tend to charge a fee for early repayment. So should one come into a windfall of money and decide to pay off the mortgage in one lump sum, it may cost him or her some money.
What if one’s financial situation is not ideal?
Most times when a person requests for a mortgage in Singapore, and they have all their ducks in a row, the bank will give an Approval in Principle. This approval enables one to know just how much money they can get and they are able to shop for a home in confidence knowing that the cash has been approved. There are times though, when the lender will decline to give this approval. Most times it is because they consider the person a high risk lender, and they are not confident about his or her ability to repay. Most times, the AIP is denied because of the person’s poor credit history or high TDSR. This can be fixed though.
- Poor credit history – If this is the reason why the AIP has been denied, then the person will need to first take the time to repair their credit history so that their credit score can improve. By doing this, one can become eligible for a loan in a few years.
- High TDSR – In Singapore, the amount of income you commit to the payment of debt cannot be more than 60%. This is for all debt including school loans, car loans, credit cards, and personal loans. Home loans in Singapore also come under this percentage, so if the housing loan takes the TDSR over 60%, then he or she cannot qualify for the loan. This can easily be resolved by purchasing a smaller or cheaper home, which means that the loan amount would be less. Consequently, the monthly payments will be less and one could come down under that 60% mark.
However, if one is in urgent need for financial help, there are still licensed moneylenders in Singapore who are willing to lend a hand. Licensed moneylenders in Singapore are unlike loan sharks and strictly follow the rules set by the Ministry of Law. They tend to be more lenient in their lending and financial packages. Speak with professional consultants today!
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.