There is fierce competition among banks for their share of the Singapore house loan market. House loan Singapore lenders are constantly coming up with new packages to attract people who are seeking out house loans in Singapore. Some deals are so attractive that your choice is made up as soon as you put everything down and do a housing loan comparison.
The best house loan Singapore package is not always the one with the best interest rates. It is one that meets your needs as the home owner. It takes into account your current and future financial position so that you will not one day find that your home mortgage is a liability you cannot afford.
Here are things you should consider in a Singapore house loan
- Fixed rate mortgages or floating rate mortgages. If you are risk adverse, a fixed rate mortgage can address your concerns on mortgage interest rate fluctuations. It allows you to secure a guaranteed mortgage interest rate even if market interest rates rise. However if you believe that market interest rates will fall and remain low, you can choose to take up a floating rate mortgage that is linked to a benchmark rate. The 2 most commonly used benchmark rates are the SIBOR and SOR.
- Interest only mortgages. These types of loans allow you to only make payments on the interest of the mortgage for a period specified in the contract. It therefore allows you to make much smaller monthly installments before you start paying for the loan principal as well. It is most suitable for those who want to fully leverage their finances to purchase a property.
- Do research on rental rates in the market. If it is your first attempt on being a property investor, get reliable information on rental rates for the house that you are buying. Properties don’t always find occupancy the moment you release it to the market. If you are going to depend on rental to pay for your mortgage, you have to factor in the possibility of having a vacant house for a period of time. You should have cash or liquid assets ready so that you don’t default on your mortgage.
- Penalties and fees. You can bet that there are going to be a number of terms in a housing loan that justifies a lender to charge you more fees. Look out for processing fees, late payment fees, default fees, cancellation fees, annual fees, fall below fees, redemption fees, etc. However, mortgage lenders may subsidise some of the closing costs like insurance premiums, legal fees, valuation fees, etc.
- Debt servicing ratio. This is a simple ratio used by banks to see if you can afford the mortgage. Different banks may have different acceptable ratios. Your financial commitments against your income cannot exceed the ratio set by the bank. 35% is a good ratio to work around with. Your financial commitments taken into consideration can be your car loan, study loan, etc.
- Mortgage insurance. Should something happen to you and causes you to lose your income, you don’t want your family to be burdened with the debt on the mortgage. Insurance transfers this risk to the insurance company. Always buy insurance.
These are some tips to keep in mind when you are going about seeking a suitable house loan Singapore.