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10 Things To Note When Shopping For A Home Loan

>> Sunday, September 6, 2009

Sunday Times. 6 Sep, 2009
By Lorna Tan

Coming up alongside the current property rally is a fierce competition among banks here, eager to sign up homebuyers with attractive and innovative loan packages. The loan options being dangled are mind-boggling.

Here are 10 things to consider in a home loan:

1. Fixed or floating rate mortgages
Customers who want stability should opt for a fixed-rate package.

2. Sibor
Sibor is mainly affected by the US Federal Reserve rate and the liquidity of Singapore's banking system. So do not calculate your 'affordability' solely based on current rates as it will change in future.

3. Loans with interest-offset features
Customers with healthy monthly cashflows or initial lump sums parked in their savings accounts may want to consider this feature.

4. Interest-only packages
These are available only for new loans. Customers pay only the home loan interest and not any of the principal for a specified period. This option is targeted at the investor who wants to maximise bank financing for his property investments or customers who may have temporary cashflow problems.

5. Check out vacancy rates and rental rates
Investors who depend on rental income to pay their housing loan instalments should realise their property might go untenanted and rental rates might change.

6. Penalties and fees
Customers should look into the lock-in period and penalty fees. Some loans even come with benefits including legal fee, valuation fee and fire insurance fee subsidies. Another potential cost is the loan cancellation fee if the property is sold before the loan is disbursed.

7. Valuation
Cash-over-valuation (COV) - has to be paid by the buyer in cash. Get an independent property valuation before committing to a sale price.

8. Debt servicing ratio requirement
It is the percentage of one's monthly income used to service long-term liabilities. The recommended healthy debt servicing ratio is about 35 per cent.

9. Have a buffer
Homeowners should have a buffer of at least 12 months' funds to service the loan so that they have sufficient time to rent out or sell the property.

10. Mortgage insurance
That dream home may become a nightmare for your family if you fail to insure your investment.

The best deal package will be one that best suits the needs of the home owner and not necessarily the lowest interest rate.

1 comments:

Chris from 123homeloans.co.za October 31, 2012 at 2:19 PM  

Fixed-rate mortgages certainly make budgeting easy for homeowners as they know exactly how much they need to set aside pay per month for principal and interest. Adjustable-rate mortgages may be a good option only if you'd be selling the house in less than 5 years or you know your income is working its way up.

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