It is important for you to first know what type of home loans are there available for you to choose from in the market. In Singapore, you can either get a HDB Concessionary Loan (HDB Loan) or a loan from financial institutions (bank loans).

Comparing HDB Loan and Bank Loans

As the name suggest, HDB loans is only available to those buying HDB flats. You have to fulfil certain criteria to be able to secure a HDB loan. At least 1 buyer have to be a Singapore citizen and your average gross monthly household income for families cannot exceed $12,000.

HDB loans are ideal for home buyers who do not have much cash on hand. This is because HDB loans require you to pay a smaller amount of downpayment (10% of your purchase price) as compared to bank loans (25% of purchase price). On top of that, you can pay the downpayment for HDB loan fully with either cash or your CPF Ordinary Account. For bank loans, you have to pay 5% in cash and the remaining 20% with CPF or in cash.

You can also borrow more from a HDB loan (90% LTV) as compared to a bank loan (75% LTV). LTV stands for Loan-To-Value Limit and it is the amount you can borrow to finance your home. A LTV ratio of 90% means that you can borrow up to 90% of your property value while the remaining 10% can be paid in cash or through you CPF.

That being said, HDB loans tend to have higher interest rates as compared to bank loans. The interest rate for HDB loans is pegged at 0.1% more the CPF OA interest rate. It is currently at 2.6% and has remained at this rate for many years.

Different types of bank loans

Bank loans can be used for both HDB flats and private property. There are 4 main categories of bank loans: Fixed Rate, Floating Rate, Fixed Deposit Linked Rate and, Board Rate.

A fixed rate home loan package is one where the interests rates are fixed and kept the same throughout a period of time, usually 1-2 years. You have stability as there are no fluctuations to the interest rate during this period and your monthly repayment does not change. However, fixed interest rates are higher than the other rates as banks factor in the risk that market rates increase beyond the rate they give you during this period of time.

A floating rate is one where the interest rate is pegged to the SIBOR (Singapore Interbank Offer Rate) or SOR (Swap Offer rate). You can read up more on SIBOR rates here. The interest rate is usually calculated using a 1M SIBOR or 3M SIBOR as a peg and adding a spread on top of it. These rates are usually more volatile as they will change depending on the peg that the bank set. For example, if you have 1-month SIBOR, your interest rate will change every month. The SIBOR and SOR rates are also publicly available, hence there is more transparency and customers do not have to worry about being charged an unreasonably determined rate set by the banks.

A fixed deposit linked rate are interest rates pegged to the bank’s fixed deposit interest rates. You can find more information here. Compared to floating home loan rates, FD rates are not as volatile. Another factor to consider is that banks have full control in determining the FD rates whereas no bank can control the SIBOR rate. This means that any changes to the interest rate you pay is done entirely at the discretion of the bank, without any external checks. However, banks are unlikely to increase the FD rate as it would mean that they have to pay more interest.

A board rate are interest rates completely determined by the banks. Banks tend to change their rates quarterly, making it less volatile than SIBOR or SOR pegged rates. However, they are much obsolete now because there is little transparency in the rates and the rates are often much higher. The way of determining the board interest rate is not disclosed to the public and this means that banks can change the interest rate that you anytime they want, without any external checks and balances!

Which type of home loan package is best for you?

It depends on what kind of person you are and your lifestyle.

A HDB loan is better for young couples who are just starting out in their career as you can borrow more money and have to pay a smaller downpayment amount. For banks loans, fixed rates are better for people who are risk adverse and wants to protect themselves against any further increase in their monthly loan repayment. However, if you are okay with some volatility, a floating home loan rate might actually help you save more money in the long run.

Still confused over which type of home loan to go for? Check out our comprehensive home loan comparison tool or contact us at +65 9845 9978 to book a free consultation with our experienced mortgage advisors!

The post Different types of home loan packages in Singapore first appeared on Best Mortgage Singapore.

SIBOR Home Loan Rate

SIBOR stands for the Singapore Interbank Offered Rate and is the interest rate at which banks use to borrow money from each other. This rate is derived daily from a comparison of interest rates from at least 12 banks in Singapore and published on Association of Banks in Singapore (ABS)’s website.

A SIBOR home loan rates usually comprises of two parts: the SIBOR rate and the bank’s spread. For example, it is usually expressed like this: 3M SIBOR (SIBOR Rate) + 0.5% (Bank’s spread).

The SIBOR rate is usually expressed in numbers like 1M SIBOR or 3M SIBOR to indicate how often the SIBOR rate is refreshed for your loan. If you have a 3M SIBOR rate, this means that the bank will check the SIBOR rate and update it every three months. If you have a 1M SIBOR rate, then your home loan interest rates will be refreshed every month.

The bank’s spread can be generally understood as the bank’s ‘surcharge’ on top of the SIBOR rate. The SIBOR rate will always stay constant regardless of whichever bank’s home loan package you’ve chosen. The bank’s spread will thus determine whether you have a low home loan rate or not.

Let’s look at an example of how a SIBOR home loan rate is calculated:

If your home loan interest rate = 3M SIBOR + 0.5%,

Assuming the 3M SIBOR rate is 1.8% and the bank’s spread is 0.5%, then the interest rate for your home loan would be 2.3%.

Fixed Deposit Home Loan Rate

Instead of being subjected to external market conditions, the fixed deposit home loan rate is pegged by the bank’s fixed deposit rate. It is what people commonly refer to as a “board rate” which means that the bank has full control over the interest rate and can raise it any point they want.

Similar to SIBOR home loan rates, it comprises of the bank’s fixed deposit rate and the bank’s spread. The bank’s fixed deposit rate usually have numbers next to them such as FHR9 and FHR18. The number represents the interest rate period. So FHR9 would refer to the bank’s 9 month fixed deposit rate (which would differ from the rate of other time periods).

You’re not alone in this!

Now that you better understand what the two different types of home loan mean, you can choose and decide which kind of home loans suits you best! You can use our free and comprehensive home loan comparison tool to look at the different loan packages available here.

However, you don’t have to make this decision all by yourself! Our mortgage experts at Best Mortgage Singapore can advise and help you make the best decision for yourself! So don’t hesitate to contact us for an enquiry today: +65 9845 9978

The post Understanding SIBOR Home Loans and Fixed Deposit Home Loans first appeared on Best Mortgage Singapore.

Total Debt Servicing Ratio (TDSR) is a framework implemented by the Monetary Authority of Singapore to safeguard borrowers against over-borrowing for property purchases. Basically, it limits the amount individuals can spend on monthly mortgage debt repayment, based on a percentage of their gross monthly income. Currently, the highest TDSR that financial institutions can grant is capped at 60% of gross income. This means that you housing loan repayment, after adding all your repayment obligations (student loans, credit card debts, car loans and etc) cannot exceed 60% of your income.

TDSR vs DSR and MSR?

TDSR may seem similar to the terms Debt Servicing Ratio (DSR) and Mortgage Servicing Ratio (MSR). We will explain how they are different.

MSR only takes into account your housing loan repayments. So a MSR of 30% means 30% of your monthly income can go into home loan repayments, regardless of what your other repayment obligations are.

Then we have the old standard, DSR. TDSR is much more restrictive than DSR as DSR does not factor in certain unsecured loans such as credit card debt.

So… how does this affect me?

#1 Property Investing becomes harder

If you already have an outstanding home loan, it’s unlikely you can take on another one without exceeding the 60% TDSR.

#2 You can’t borrow as much even without other debts

Home loans are subject to fluctuating interest rates. Hence, when you decide on a home loan, the bank implements a “stress test” to check if you can handle sudden rise in interests. This means that home buyers must be able to maintain a TDSR of 60% or under, even if interest rates were to rise to a certain amount. This will in turn affect the loan quantum that can be borrowed even though you do not have any other debts.

Currently, the stress test is standardised at 3.5% for residential property and 4.5% for commercial properties.

#3 If you have variable income, you get to borrow less

With the rise of the gig economy, there are more self-employed individuals than before. How does the TDSR apply to a self-employed individual?

Under the new TDSR framework, commissions, rental income or other variable sums are grouped under variable income. And financial institutions are to treat that variable income as though it is 30% less than it actually is.

Example: As a self-employed individual, you make $6500 on average a month. However, when calculating your TDSR, your income is only considered to be $4550, which would result in you having a much lower loan quantum.

#4 More paperwork!

When TDSR was first introduced, there was a significant increase in paperwork required to get a home loan. Banks would require all your financial statements including credit cards debts, student loans and even your gym memberships! If you have variable income, you also need proof of the commission and fees you get from your clients!

Want to save yourself from doing all the paperwork and learn more about how to make the best of your home loan? Contact us to make an enquiry today at +65 9845 9978.

You can also use our online loan calculator to compare and get the best home loan package available in the market! Hassle-free and at no cost!

The post What is Total Debt Servicing Ratio (TDSR) and how does it affect you? first appeared on Best Mortgage Singapore.

What is Refinancing?

Refinancing is the process of switching your existing home loan package to a new one with another bank. Refinancing is a common practice in Singapore and people often do it to take advantage of:

1. Lower interest rates
2. A shorter loan tenure
3. The option to change their mortgage type (eg: from a fixed rate to a floating rate)

Why Refinance?

In Singapore, most home loan packages are structured similarly. The interest rates for the first 3 years are significantly low followed by a substantial increase from the 4th year onwards. Since there are no loyalty rewards for sticking with the same bank, it makes financial sense for property owners to switch to another loan package with better interest rates every few years.

Over time, getting a lower interest rate can result in significant savings. Not only can you save a huge amount of money, refinancing can lead to lower monthly repayments as compared to your existing monthly mortgage payment.This will improve your cash flow, leaving you with more discretionary income for other expenses.

Pro Tips for Refinancing

#1 Keep a look out for a better offer

The home loans market is ever-changing, with banks offering different interest rates every month. While your loan package may have been the best one several years ago, it is unlikely to be that way now.

Using an online home loan calculator can help to compare all the available home loan package quickly, without having to toggle through the websites of all the different banks. Hassle-free and at zero cost!

#2 Monitor the lock-in period

If you refinance your home loan after the lock-in period expires, you would still have to bear higher repayments for a minimum of the next three months due to the notice period requirement. If you monitor your lock-in period, you would be able to apply for refinancing earlier.

The best time to refinance is to do it four to seven months ahead of the lock-in expiry.

#3 Improve your TDSR

The Total Debt Servicing Ratio (TDSR) is a framework to ensure that people borrow and banks lend responsibly. The TDSR limits the amount borrowers can spend on debt repayments to 60% of their gross monthly income. It was introduced to ensure loans are only issued to individuals who can actually afford them.

Improve your TDSR by clearing up some of your other debts. It’s advisable to do so a month or two ahead so that it shows on your credit report.

Still unclear if you should refinance? Book a free consultation with us at +65 9845 9978 today!

The post Why should I refinance my home loan? first appeared on Best Mortgage Singapore.

Since buying a property is a huge financial commitment, it pays to understand the jargon and terms often associated with it so that you know what you are paying for.  Here are the top 15 terms and acronyms you’re likely to come across as you prepare to take out a home loan:

1. In-Principle Approval/Approval-In-Principle

Approval-In-Principle (AIP) is a non-binding pre-approved loan amount given by the Bank based on your credit score. This amount indicates how much you will be able to borrow so that you can focus on properties that you can afford and not waste time viewing those that are out of your budget. The AIP/IPA is usually valid for 30 days.

2. Interest Rate

Interest Rate is the cost of taking out a mortgage loan. For home loans, they are usually classified as fixed, variable or board rate.
A fixed rate loan charges the same rate of interest throughout the loan tenor.
A floating rate loan offer rates that reset periodically to match the benchmark it is following. You may want to ask the bank about the calculation of the floating rate as not all banks are transparent when it comes to using their internal board rate.

3. Loan Tenor

Loan tenor refers to the number of years it will take to repay the loan.

4. Loan-to-Value (LTV) Ratio

The Loan-to-Value (LTV) ratio is calculated by dividing the amount of the mortgage by the value of the home. LTV may be up to 80% if you do not have any other outstanding loans.

5. Singapore Interbank Offer Rate (SIBOR)

Singapore Interbank Offer Rate (SIBOR) refers to the rate at which banks in Singapore lend/borrow funds from each other. It is calculated daily based on the average cost of borrowing funds in the interbank market for one, three, six and 12-month maturities. It is quite common for banks in Singapore to use the SIBOR as a benchmark to price their home loans. Your home loan rates will usually include a spread that the bank adds on top of the SIBOR rate.

For instance, the SIBOR might be at 1.2% now and the spread is 0.1% from the bank, making your the interest chargeable at 1.3%. One advantage of using a SIBOR-rate loan is that it is transparent as the data is publicly available.

6. Swap Offer Rate (SOR)

Another commonly used benchmark rate to price home loans is the Swap Offer Rate(SOR). Comparatively, it is more volatile compared to the SIBOR as it takes into consideration the exchange rates between the US dollar and Singapore dollar. However, borrowers may take up a SOR-rate loan in order to take advantage of bigger declines in interest rates if they feel that the rates are on a declining trend.

7. Mortgage Servicing Ratio (MSR)

The MSR is the percentage of your total monthly income that you are allowed to use for the monthly home loan repayment. As part of the cooling measures set by the Monetary Authority of Singapore(MAS) in 2013, the MSR is capped at 30 percent. You should figure out your LTV and MSR before you take up a home loan as it will determine your loan quantum. Do note that the MSR only applies to bank-issued loans for the purchase of HDB flats.

8. Total Debt Servicing Ratio (TDSR)

The TDSR is another cooling measure similar to the MSR that limits the amount of money that banks can lend you. The difference is that outstanding debts are factored in as well – credit card debts, car loans, personal loans. This effectively means you you’ll need to discount this from your monthly income before accounting for the 60% limit.

9. Lock-in Period

The Lock-in Period for a home loan refers to a set number of years that the borrower will have to stay with the terms of the loans, after which he/she will be penalised for changing the terms of the loan contract. Banks typically offer a more attractive interest rate for the first few years of the loan in order to attract borrowers to stay with the loan package.

10. Refinance/ Repricing

Typically after the first few years of your loan where you no longer enjoy the lower rates, market interest rates might have moved to be more favourable compared to the rates you are currently paying on your loan. Refinancing refers to applying for a new loan to replace the existing home loan for a more attractive rate. You should aim to refinance your loan after the lock-in period so that you do not incur any pre-payment penalties.

Repricing is a similar concept but rather than applying for a new loan with another bank, you ask for a better loan package from the existing bank.

Contact us!

Are you looking to get or refinance your housing loan? Make an enquiry at +65 9845 9978
!

The post 10 Mortgage Jargon Everyone Should Know Before Taking A Home Loan first appeared on Best Mortgage Singapore.

But yes, choosing a shorter loan tenor definitely lets you save on the interest payments, but there are a bunch of other things to consider. So let us play devil’s advocate here today to let you know why there are a few advantages to choosing a longer loan tenor.

But first, let us get a few facts right…

Since the implementation of cooling measures in 2013, the Monetary Authority of Singapore(MAS) has limited the maximum years of loan tenor for private properties to be at 35 years and 30 years for HDB. On top of this, the total loan tenor should not extend past age 65 for the borrower.

As a general rule of thumb, most people would try as much as they can to get a loan tenor that is shorter yet affordable on a monthly basis. This especially makes sense if you are paying down a property for your own stay since you probably do not want to be saddled with debt into your old age when you still need to service your monthly repayments when you are no longer earning an income.

On the other hand, if you are buying a property for investment purposes(collect rental income), it may not matter so much in terms of how much interest you are paying as long as the rental income can cover the monthly repayments. While your tenant is technically servicing your home loan for you, you will also most likely make capital gains when it comes the time to sell your property. Thus, it may make sense to go for a longer tenor in this case so as to keep the monthly repayments lower and affordable, or ensure that you do not need to put up extra cash from your own pockets.

Reasons For A Longer Tenor

1. More affordable monthly repayments. One of the most compelling reasons for someone to opt for a longer tenor is to ensure that paying their mortgage does not crimp their lifestyle. Many home buyers tend to forget about other costs they need to service when it comes to a new home purchase – fire insurance, property taxes, condominium maintenance fees, utility bills, renovation and getting new furnishing. All this can feel like a lot of money at the start, so you may want to ease yourself into your monthly financial commitment by starting with something lower. After all, you can always refinance in the next few years!

2. More leeway for rate hikes. Stretching out your loan tenor can give you more leeway to prepare for a future rate hike. Your home loan is a long term commitment and within that 20 to 30 years period, you can expect interest rates to go both up and down. While lower interest definitely will help you, a rising interest spells bad news, especially if you’ve made no contingency plans. This is why you should reconsider paying the maximum you can now as you risk overextending yourself if when interest rates increase in the future.

3. Makes more sense for property investors. Since your monthly repayments for your investment property will most likely be serviced by your rental income, you’d probably want to keep it as low as possible so that you do not need to top up your repayments with your own cash. Other than this, there is an even more important reason to take on a longer tenor. If you own a few properties or are planning to acquire more later on, you want to make sure you pass your total debt servicing ratio. With a lower monthly debt, this can help in keeping you within the debt servicing limit.

In deciding your loan tenor, affordability should be your top concern since you risk losing your property if you fail to repay your monthly loans regularly. The other important criteria has to do with the use of your property. If it is an investment property, taking up a longer tenor may actually do you more good than harm. Another word of advice – remember to refinance your loan every few years to ensure that you get the best rates possible in the current market! Need more advice? You can contact us for a free mortgage consultation here!

The post 20, 25 Or 30 Years… Should I Choose A Shorter Or Longer Home Loan Tenor? first appeared on Best Mortgage Singapore.

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

1. 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.

2. 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

1. 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.

2. 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.

1. 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).

2. 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!

The post The Ultimate Guide To Sourcing For The Best Home Loan In Singapore first appeared on Best Mortgage Singapore.