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What you need to know before taking a home loan

Taking out a home loan can be a nerve wracking experience, and a big deal for everyone. It is often said that home purchase involves the biggest capital outlay in a person’s life and especially in Singapore where home assets do not seem to stop appreciating, this is the hard truth that everyone has to come to terms with. However, taking on a debt in the form of a home loan, when researched carefully, can be your friend.

Before settling down in your dream home, here are the questions you should know the answer to before getting your home loan.

#1 Deciding between Fixed Rate vs. Floating Rate Home Loans

Unless you are paying in full for the property, you will be affected by changes to the interest rate. Home loans are typically offered in 2 categories:

a. Fixed Rate

Fixed rate packages maintain the same interest rate during a lock-in period of 1 to 5 years, regardless of market conditions, after which the interest rate converts into a floating rate. Should customers decide to refinance during the lock-in period, banks may impose penalties. Nonetheless, fixed-rate mortgage packages are favoured by many home buyers in view of their expectations of further interest-rate hikes and protects you from any upward interest rate movement.

b. Floating Rate

Floating rate packages have interest rates that fluctuate daily, usually pegged to the SIBOR and SOR indices. They can come with or without lock-in periods. Home buyers who opt for floating rates usually take advantage of the low interest rate environment and monthly instalment amounts. This is particularly usefil in a flat-to-declining interest rate environment.

To this end, home buyers should be mindful to choose home loan packages based on their needs instead of trying to take advantage of short-term interest rate movements.

#2 Affordability

Your current financial commitments affect your affordability. Here are some useful pointers to consider:

a. TDSR

Under the latest Government regulations in Singapore, your Total Debt Servicing Ratio (TDSR) cannot exceed 60% of your income. If you are already taking on a car loan, personal loans or credit card debts, it may affect Approval in Principle (AIP) from your bank of choice. The trick to increase your loan application chance is to maintain zero to low debt ratio.

#3 Fees and Charges

When it comes to home loans, you may be inclined to settled on the cheapest home loan rate, but do remember to compare the fees and charges applicable to the loan. Fees and charges are levied under these circumstances:

– Processing the loan application

– Withdrawl after accepting loan offer

– Late payment

– Amending the loan tenor

– Restructuring the loan

– Processing the loan application

Those fees could add up to a few thousand dollars, so it’s worth knowing how much your banks in Singapore might charge you. The amount you can borrow will typically be the same across banks. So, you are not obligated to go with a bank just because it has pre-approved your loan. It is smart to seek pre-approval from multiple banks so you have options before making a conscious decision on a loan to take.

Regardless of whether you are planning to buy a hdb or private property, a great home loan deal always come with making smart decisions by comparing home loans and mortgage interest rates online. A good place to start is Moneysmart which serves as an effective tool for online loan comparison which you can surf at the comfort of your home or anywhere you prefer, so long as you have your smart device with you. Moneysmart has come as a good choice for loan comparison. The browsing experience has been intuitive, with the website creating user experience at the forefront of their thoughts. I find the site easy to navigate, stored with current and useful information and it is definitely a breeze when comparing the latest home loan deals. You would know which site to bookmark and make a visit the next time you need information on home loan packages to assist you.

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