The home loan market in Singapore may appear to be too much for prospective purchasers to handle, with so many different financing options available. But whether you are looking for your first home or refinancing an existing property, you really cannot shortcut understanding the landscape if you want to make a money-smart decision. Singapore’s home loan market is dynamic, with a multitude of types of loans from which to choose. They all have their pluses and minuses; which one is right for you depends on your risk tolerance and other factors unique to your situation.
Types of Home Loans
Each has its benefits and drawbacks; the most suitable for you will depend on your risk tolerance and financing horizon. The first common type of loan is a fixed-rate loan. Indeed, many folks in Singapore seem to prefer these straightforward, “set-it-and-forget-it” loans that offer a guaranteed stability in interest rates and monthly payments over a promotional period of, say, 1 to 3 years. If the price of money in the market advances, these loans will continue to be “stuck” at the lower rate for the rest of the term—and while you can pay them off early if you need to, you can’t quite call them “refinance-until-you-get-it-right” loans. To save money long term, it is important to find the best home loan for you.
Hybrid Loans
Hybrid loans combine both fixed-rate and variable-rate features. For an initial set number of years, you enjoy a fixed rate, followed by a period when your rate floats. When you’re trying to decide which home mortgage might best serve you, pay the most attention to interest rates. Compare the rates different lenders offer. Even a slight difference can mean a lot of money saved or lost over the term of the loan. Always ask how long a rate is “locked in” and whether it’s a “promotional rate.” When you get clear on those terms, you’ll have a much better sense of which loan is right for you.
Loan Tenure
Then there’s the question of loan tenure, which will affect your affordability and your overall interest costs. If you can pay more each month, go for a shorter term. If you need lower monthly payments, you can accept a longer term but will end up paying more interest in the long run.
Prepayment and Penalty Terms
It’s also vital to pay attention to the prepayment and penalty terms. Know what’s what when it comes to prepayment. Some loans don’t allow it; others require (or strongly hint at) “commitment to the term” if you want to “avoid penalties.” Whatever side of the fence the loan you’re considering lands on, prepayment and penalty terms should definitely be under your financial microscope. You want smooth sailing ahead, both with your overall costs and with the level of service your bank provides.
Current Market Trends
Stay informed about the latest developments in Singapore’s home loan market. There are two main benchmark rates determining the rates for floating-rate loans: the Singapore Interbank Offered Rate (SIBOR) and the Singapore Overnight Rate Average (SORA). Increasingly, home loan products in Singapore have been pegged to SORA instead of SIBOR. So, what exactly is SORA? And should you care about it if you’re in the market for a home loan in Singapore? By understanding the basic dynamics of how home loan rates are set, you can make a better-informed choice when selecting a home loan.
Conclusion
To find the optimal home loan in Singapore, you must consider several factors like interest rates and loan tenure. And of course, there’s the first factor: Are we even considering the right options in the first place? Making a decision on such a significant aspect of your finances—not to mention one that is usually for the long term—demands an understanding above and beyond the basics. It doesn’t hurt to seek out comparisons, or even some semblance of an affirmation if your choice is leaning in a certain direction.
Dariel Campbell is currently an English instructor at a university. She has experience in teaching and assessing English tests including TOEFL, IELTS, BULATS, FCE, CAE, and PTEG. With over a decade of teaching expertise, Dariel Campbell utilizes his knowledge to develop English lessons for her audience on English Overview.
