Buying a new property? Here’s what you need to look out for in your home loan
A house is probably the first big ticket item purchase for every young Singaporean chasing the “BTO Dream”. However, having a roof over your head in a city known for its expensive housing requires careful considerations. Here are 6 pointers to take note of before committing to a home loan:
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Tenure and Loan-to-Value
Under the new MAS ruling, tenures for home loans are capped at a maximum of 35 years. However, for loans exceeding 30 years, the Loan-to-Value ratio is significantly tighter. The table below illustrates the maximum loan amount allowed for different scenarios.
| For Individual | No housing loan (HL) | 1 existing HL | 2 existing HL |
| Loan to value | 80% | 50% | 40% |
| Minimum cash requisite | 5% | 25% | 25% |
| Tenure | 30 years or up to age of 65
(Whichever is lower) |
30 years or up to 65
(Whichever is lower) |
30 years or up to age 65
(Whichever is lower) |
| Loan to value | 60% | 30% | 20% |
| Minimum cash requisite | 10% | 25% | 25% |
| Tenure | 35 years or up to age of 75
(Whichever is lower) |
35 years or up to age of 75
(Whichever is lower) |
35 years or up to age of 75
(Whichever is lower) |
| For Non Individual | No HL | 1 existing HL | 2 existing HL |
| Loan to value | 20% | 20% | 20% |
| Minimum cash requisite | 80% | 80% | 80% |
| Tenure | 30 years of up to age of 65
(Whichever is lower) |
30 years or up to age 65
(Whichever is lower) |
30 years of up to age of 65
(Whichever is lower) |
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Discount and Rebates
There could be instances where developers give discounts for their properties to entice potential buyers. As governed by MAS’ guideline, banks are required to only grant loans after considering the discounts given. For example,
With Discount
Price of Property: $1,000,0000
Discount: $10,000
Maximum Loan: ($1,000,000-$10,000) x 80% = $792,000
Without Discount
Price of Property: $1,000,000
Maximum Loan: ($1,000,000 x 80%) = $800,000
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Terms and Conditions
It is also important for potential buyers to take note of the terms and conditions of the loan. Some of the important items include the lock-in period and commencement date. The lock-in period refers to a fixed period in which the buyer commits repayment to the bank.
Should a buyer break the contracted lock-in period, he/she will be subjected to a financial penalty. The commencement date refers to the date in which a buyer starts paying monthly instalments and interests (typically within 6 months of acceptance of Letter of Offer (LO)).
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Subsidies
Banks usually have a list of law firms that they work with for mortgages and legal conveyancing fees will be charged by these law firms. However, banks may grant buyers a legal fee subsidy of up to $2,000 (when refinancing) when they take up a mortgage with the bank. In general, the bank’s legal subsidy should cover the legal costs – provided the loan amount is sizable.
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Redemption
While you might consider fully paying off your loan when you are financially able to, you should think twice as early redemption of loans come with financial penalties. Partial redemption should only be done after the lock-in period to avoid penalty. A 1-month notice is also required. On the other hand, full redemption requires 3 months’ notice. Moreover, upon acceptance of the bank’s LO, should the borrower decide not to proceed with the loan before disbursement, the borrower is subjected to a cancellation fee ranging from 0.75% – 1.5% of the loan amount cancelled.
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Rates
Lastly, it is important to note the difference between fixed and floating rates. A fixed rate package is a bank’s commitment to a borrower of a specific fixed rate for a specific period of time (e.g. 3-year fixed rate of 1.8%). Fixed rates are usually higher than floating rates but gives the buyer a sense of stability as they would not be subjected to any fluctuations due to market conditions.
Floating rates however, are volatile as they are pegged to reference rates such as SIBOR or a bank’s internal rate. SIBOR is the most transparent index in the market and the banks have no control over the movement of the index. The internal bank rate, though less transparent as it is determined by the bank, is relatively less volatile as compared to SIBOR.
All in all, the purchase of a property is not a simple task as there are many parties involved and requires a good understanding of the numbers being used in the negotiations. Should you have any queries regarding your home purchase, always seek assistance from a professional!
