Tips To Find The Best Bank Home Loan In Singapore
By: John Garcia | Date Posted: August 24, 2022
Table of Contents
- Let’s start with the basics, can you afford the home of your dreams?
- LTV (Loan-to-Value Ratio)
- TDSR – What does it mean?[+]
Could you guess which city has the highest living costs in the world? London? Paris? or Tokyo? In the 2020 Economist Intelligence Unit (EIU) report, Singapore holds this dubious honor (tied with Hong Kong and Osaka).
For most Singaporeans, buying a home is the most expensive purchase they will make in their lifetime. Singapore’s property prices have generally risen since the 1990s and early 2000s, even though the curve has flattened significantly.
The cost of even a modest, three-room HDB flat has risen to about $200,000. In mature estates, larger 4- and 5-bedroom flats can cost upwards of $600,000+.
In the case of private properties, expect to pay at least twice as much. Landed houses usually cost at least a few million dollars, while condominiums typically cost close to $1 million.
Consequently, if you want to purchase a house in the most expensive city in the world, you’d probably need a house loan (aka mortgage loan or home loan).
A Bank home loan is one of the products that are available at most banks in Singapore. When it comes to home loans, there are many factors that you should consider. It is important to know how each of the banks in Singapore offers different rates, charges, and tenure. To get the best Bank home loan in Singapore, you need the following tips;
Let’s start with the basics, can you afford the home of your dreams?
First-time homebuyers may find it difficult to determine what they can afford.
When choosing a property, you can estimate how much you can afford with the mortgage calculators that can be found on many bank websites. Take a few minutes to do your sums here before you begin your home search – you’ll save yourself a lot of time and effort in the long run.
In addition to your salary, the amount of money you can borrow also depends on Loan-to-Value (LTV) ratios, Mortgage Servicing Ratios (MSRs), and many other factors. Let’s take a look at each one in turn.
LTV (Loan-to-Value Ratio)
Whether a loan is from HDB or a bank, the loan-to-value (LTV) ratio determines how much a buyer can borrow. Borrowers are required to maintain LTV ratios to prevent overleveraging.
HDB Concessionary Loans have a maximum loan-to-value of 90%, which are available for BTOs, SBFs, ROFs, and resale flats. In other words, if your property value is lower than your purchase price, you are able to borrow up to 90% of its value.
Bank loans have a maximum LTV ratio of 75% for the first loan (if there is no outstanding home loan). A cash payment of 5% is required for the remaining 25%. Alternatively, you can use your CPF-OA savings to pay the remaining 20%.
TDSR – What does it mean?
MSR is often confused with Total Debt Servicing Ratio (TDSR), which is often asked by home buyers. According to the TDSR, a borrower can only spend 60% of his or her gross monthly income on debt repayments.
Your mortgage repayments are included in these debt repayments. In other words, if you have other outstanding loans (like a car loan, credit card bill, or personal loan), they all count toward the 60% limit.
As mentioned, the MSR is only applicable to HDB flats and ECs. TDSR is only important if you’re purchasing private property.
Do a calculation of interest and penalty charges.
Most banks have different penalty charges, so you should be aware of the kinds. If you have missed payments, then you should know the rate at which it will multiply by the number of times. For example; If you have made a payment on time and manage to keep that position for three years, then after three years, you will have paid 3x your interest rate per year;
You should not split the payment.
If you do not have enough money to pay at a time and you have made small payments, you should consider splitting payments. If you can get rid of this burden in the end, there will be no penalty for the action. To avoid penalty charges by splitting the payments, it will be necessary to plan ahead and arrange so that your home loan is paid in one monthly payment.
Consider a fixed rate or variable rate (floating rate) home loan.
Most banks offer fixed interest rates on their home loan, and if you want to save some money easily on your loan, it is better to select a variable rate home loan. If you plan to buy a house within the next few years, you should consider a fixed rate (fixed interest rate).
If you have to borrow less than $ 20,000 then it may be fine.
If you are planning to get a home loan with less than $ 20,000, that may be sufficient for your needs. You only need to pay higher interest rates and other expenses in the first few years of your loan and when you need to pay off the capital. This will give you the best Bank home loan in Singapore. On the other hand, if you have bought a house and need some extra money for something else in the near future, then it will be better to take advantage of something better (such as an additional credit card). If the interest rates are lower, the loan’s repayment period is shorter, and you will not spend much money on interest.
Consider pre-payment penalties
Pre-payment penalties (also known as prepayment charges) are extra fees and expenses that can be paid. These charges also have to be included in your calculations when deciding which home loan is best for you. If you have decided that it is better to take a home loan with no pre-payment penalties, then you should understand that this only applies if you pay off your loan early without being penalized for it.
Consider mortgage insurance
With the help of mortgage insurance, you can protect your loan with an additional amount per month. This means that you pay for it in advance and will not have to worry about it if something happens to your house. The amount you pay for the insurance is usually paid monthly or quarterly, depending on your loan type. You should also calculate how much it will cost each month or each year to pay for this service, as well as what protections are offered at the time (such as the ability to redraw up if you need money).
Thank you for reading!