Getting a home loan is a huge financial commitment. One wrong move can put your finances in ruins and even jeopardize your other financial goals. To help our readers make the right home loan decisions, we created a blueprint of an ultimate guide on home loans in Singapore. With this guide, you don’t have to worry about getting the wrong home loan deal, ever.
So, read on for Best Mortgage Singapore’s ultimate guide on how to source for the best home loans, including tips on choosing home loans and potential pitfalls that you should watch out for.
Tips To Help You Get A Cheaper Home Loan
- A Good Credit Score Can Help You Save On Your Home Loan Interest Rate
While different banks have different ways of evaluating whether you are credit worthy, most of them do reference the Credit Bureau Singapore’s (CBS’) credit report.
What Is CBS Credit Report?
Each CBS credit report shows details about the types of credit accounts you have with every bank in Singapore. It includes information like your credit card limit and your current outstanding loans. It even includes whether you have made late payments in the past, whether you have defaulted on loans and even the number of inquiries you have made for loans.
How Will CBS Credit Report Affect Your Home Loan?
If you have a bad reputation with the CBS, banks are either going to add a premium to your home loan interest rate, or they will extend a lower loan quantum to you. Interestingly, if you have NO reputation with the CBS, the bank might also add some premium to your home loan interest rate. This is because the banks do not know how credit worthy you are. Thus, in order to reduce their risk, they need to charge you higher interest rate.
- Getting A Credit Card Might Get You A Better Home Loan Deal
If you want to get a better home loan deal from your bank, it might help if you get a credit card. You might be wondering, “What does getting a home loan deal have to do with credit cards?”.
Getting a credit card helps you to start building a healthy reputation and a good credit score, especially if you are always on time for your credit card payments. These things will show up on your CBS credit report. However, note that applying for too many credit cards will create the reverse effect, i.e. lower your credit score.
Tips To Source For The Best Home Loan
- Use A Loan Comparison Tool
In today’s digital age, finding the best home loan only involves going online and executing a few clicks on the mouse. All you need is a good home loan comparison tool to help you get all the current home loan packages onto a single page for you to do the comparison.
By simply keying in basic information like your property type, property completion status, interest rate type, loan quantum and loan tenure, you will get a table of the cheapest home loans in town.
You can also find out what’s the lock-in period, instalment for the first three years and total interest for the first three years in the same page. And that’s not all. If you feel that you have found THE ONE, you can even apply for it through the website. You don’t even have to go down to the bank to sign the package.
P.S. Check out how Best Mortgage Singapore’s latest home loan comparison tool can help you find the best home loan deal, regardless of your property type.
- How To Determine The Cheapest Floating Interest Rate Home Loans?
If you are looking for a fixed rate home loan, comparison between different home loans is simple and straightforward. But what happens if you are considering floating rate home loans like SIBOR or board rate home loans?
Two Factors To Consider: Nature Of Floating Interest Rate And Spread
There are two things to look out for when comparing across different types of floating rate home loans: Type of floating rate and spread.
- Comparing Spread Across Similar Loans
If two loans are using the same floating interest rate (e.g. SIBOR), then you just need to compare the spread to determine which is a better deal. But if the two loans are using different floating interest rate (e.g. DBS’ FHR8 and OCBC’s OHR), then it gets a bit more complicated due to the two moving variables (board rate and spread).
- Nature Of Floating Interest Rate
To determine the best floating rate home loan, you need to consider both the overall interest rate and nature of the floating interest rate.
Among the types of board rates that banks are offering, DBS’ FHR is highly regarded for its transparency. DBS’ FHR is the prevailing 8 months SGD fixed deposit interest rate of DBS Bank for amounts within $1,000 to $9,999. While DBS has the right to adjust its FHR anytime due to its board rate nature, DBS is upfront about how it sets its board rate. This is unlike the other bank-managed rate board rates which consumers do not know how they are set.
Potential Pitfalls That You Should Avoid
Since interest rates form the bulk of your home loan cost, most people only focus on finding home loans with the lowest interest rates. However, there are some potential pitfalls that are non-interest rate related.
Be Clear About The Pre-Payment Penalty Clause
For those who have taken loans before, you might have the assumption that you can repay your loan any time as long as you have the spare cash. After all, the earlier you clear your loans, the happier the bank should be, right? However, that might not be the case for home loans.
In the case of home loans, paying off loans before your due date can lead to penalty fees known as pre-payment penalty. You might get a penalty fee just to pay off part of your loan or to end your loan early. Some might even disallow you to pay off part of your loan and require you to either continue servicing the loan or pay off everything in full.
Want to know more?
Best Mortgage Singapore have a variety of tools to help you find the best home loan in the market. So make sure to check out our home loan comparison calculator or make an enquiry with us by calling +65 9845 9978!