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What Are Some of The Advantages of Taking a Home Loan?

In Singapore, the option of taking a HDB loan is also available. However, there are certain advantages of taking a bank loan over taking the said HDB loan.

Lower interest rates

HDB loan lenders tend to charge a higher interest rate than several other mortgage lenders in the market. The difference may seem like a mere percentage point or less, but in the long-term, this amount can accumulate to quite an impressive amount.

Eligibility

A HDB loan comes with restrictions on the household wage cap, and it is also extended to Singapore Citizens only. Bank loans have different eligibility requirements provided that one’s credit rating falls within their requirements.

Variety

With the wide variety of banks in Singapore, there are just as many options for home loan Singapore. Each of these loans comes with its individual interest rate, additional benefits, penalties, lock-in period and more. By shopping around, you can find and settle into a plan that is most suitable for your needs.

Factors to Consider When Taking a Home Loan

You have finally decided to buy that home you have been dreaming about. Here are some essential factors to consider before you finally settle on a loan.

Prior to filling out a loan application, you will need to make sure that you are eligible for it. Consider such things as annual income, age, credit score and the like. Your credit report will let the bank know whether you are a good debtor, or a risk to their investment.

Looking for a mortgage in Singapore will mean that your TDSR (Total Debt Servicing Ratio) will come into consideration. This ratio has been put in place by the government to ensure that borrowers like yourself do not overextend themselves. It is a good idea to make sure that you reduce your debt before taking a home loan. The bank will look to ensure that once you take on your mortgage, your debt obligations every month will be less than 60% of your monthly take-a, home. Total debt in this case refers to credit card debt, personal loans, study loans, car loans, and any other loans you may have.

The interest rate is definitely one of the key factors in selecting a home loan Singapore. Consider how low the rate is, and also whether it is variable or fixed. It is also important to find out the benchmark rate in use.

With a fixed rate, your interest rate will remain constant for the term of the loan. If you opt for a variable rate, then it will change from month to month. These rates are pegged on a benchmark rate. By opting for a fixed rate loan, you will be able to plan your finances better because you will know just how much money you need to pay from month to month. If the property is for investment purposes and you will be collecting rent on it, having a fixed interest rate is actually a critical element.

Variable rate loans tend to offer a lower rate upfront. However, since they are quite volatile, you may find that the rates can quickly rise and the loan can become more costly with time than if you had taken a fixed rate loan.

Most borrowers are fixated on the interest rates, but there are other conditions of the loan that you must look at. This can help you avoid rude shocks in the future, especially in the eventuality that you would like to refinance. Some loan conditions can greatly affect the future cost of refinancing and may negate any potential of saving on costs.

Look at the lock-in period of your mortgage because in the event that you refinance while you are still in this period, you will definitely accrue a penalty of pre-payment. You will need to look into the future and if there are predictions of interest rates changing a lot in say about 2 years, then the best thing will be to consider a loan that doesn’t have a lock-in period. That way, should you choose to refinance, you won’t face a penalty.

It is important to take note of any claw back clauses. When you are signing up for your mortgage, the bank will be dangling all kinds of carrots to entice you into taking the loan. They include legal fee subsidies, free valuation reports and even free fire insurance. However, in the event that you refinance your mortgage during the lock-in period, all these carrots can legally be withdrawn by the lender. Make sure to read the fine print and understand the conditions of the loan before signing on the dotted line.

If you will be paying 50% of the home loan Singapore, and you will have your spouse and kids living with you in the home, taking home insurance is actually a necessity for you. If you will be purchasing a private property in Singapore, Mortgage Reducing Term Assurance as it is known will not be mandatory, but it is definitely something to consider.

The MRTA (Mortgage Reducing Term Assurance) pays off the amount outstanding on the loan should you become permanently and totally disabled, or if you pass on suddenly. Without this insurance, the family stands to lose the home in case they are not able to keep servicing the mortgage. That is why it is important to take up this insurance if the loan burden is mainly on you.

If you are looking at a variable interest rate, it will be pegged on a particular benchmark rate. In Singapore, the two benchmark rates are SOR and SIBOR. . SOR is actually based on the exchange of Singaporean dollars and US dollars. This rate can be very volatile compared to SIBOR. SIBOR is the Singapore Interbank Offered Rate, which is the interest rate that banks use when lending money among themselves. Of course, the less volatile the benchmark rate is, the less volatile your loan interest rate will be. Additionally, you may be asked to choose between the 3, 6 and 12-month rate. Usually, rates with a longer term tend to be more stable, while the shorter term rates are more volatile.

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