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.