my housing loan

Selecting Which Type Of Interest Rate To Use – Fixed Or Variable

Once you resolve to avail a home loan, the next matter that storms your head is choosing between fixed and floating rate of interest. It is easy to get dumbfounded at this point if you are not financially trained.

If the media and banks are screaming about increased interest rates you make feel pressed to go and rush into fixing your housing loan rates. Your bank or financial advisor may even advise this.

Now ideally as it should be, we take for granted that once you choose fixed rate plan for yourself the rate of interest will continue unchanged for the entire period you have fixed the interest rate for irrespective of any incidental increase in the same. But actually this is not always the case.

Here we demystify the nature of fixed interest rate home loan transaction for you so that you can make an knowledgeable conclusion over the subject.

* Read the small print of your home loan document. You will find that the bank has the right to serve you thirty or sixty-days notice period that it intends to increase its interest rates.

* The bank’s first-year rates are binding on the bank only for that short period of 1 or 2 months. The 2nd-year home loan rates are not binding at all. Neither are the bank’s 3rd-year loan rates.

* Force Majeure Clause

So, while you read your home loan agreement papers, you can spot clauses like this:

“Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.”

This is called Force Majeure Clause that enables the bank to undertake appropriate modifications in the interest rates on home loans they approve to their borrowers.

So remember to look at refinancing every couple of years so that you do not pay too much. If you select a good home loan company you can save a lot of money over the life of your mortgage and in most cases the consulting cost is free.

Learn more about a premier Housing Loan advisory firm, providing Housing Loans with free mortgage broking. This and other unique content ‘home loan’ articles are available with free reprint rights.

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my housing loan

How Should Emigrants Apply for Housing Loan

In Singapore, housing loan packages have two categories: fixed rates or floating (variable) rates.

Fixed rates are sometimes extended for up to 3 years. Still, other lenders can go up to 5 years or 10 years. In many Western countries, fixed rates can be made throughout the loan tenure.

On the other hand, floating rates are classified into published rates or board rates. Published rates are mainly rates that are published daily, example being the Singapore Interbank Offered Rate (SIBOR) or Singapore Swap Offer Rate (SOR), while board rates are determined by the individual bank or financial institution. Many of the lenders put their board rates to a certain financial benchmarks, yet the accurate components are sometimes not clear and variations in board rates become indefinite.

There are no limits for emigrants applying for housing loans. Still, the following elements should be studied.

Loan to Value

In Singapore, the maximum loan to value (LTV) is 90% of the purchase price or valuation, whichever is smaller. Some loaners do not give maximum LTV to emigrants, thus, housing loan packages for 90% financing are restricted. Loan approval for 90% financing is also tighter than for LTV 80% and below.

Income Proof

A letter of appointment from your local employer or your latest income tax assessment is essential for housing loan. Some local lenders do not accept tax assessments from other countries.

Landed Property

Before an emigrant can buy restricted properties like vacant lot or landed properties such as bungalows, semi-detached, and terrace houses, the approval from Singapore Land Authority is mandatory.

In-principle Approval

You may also look at an in-principle approval before buying. Consider of hiring a respected and professional housing loan consultant. This may help you spare time and money with your loan approval.

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my housing loan

Reinvest Your Home

Many people are unaware that they have the option of switching their loan to other investor; others are simply uninterested. They simply become firm with their first lender but they don’t know that it could nring higher interest rates. Due to the amount of housing loans and the term that the loan is amortized over, the interest can ranges from thousands to hundreds of thousands of dollars. The following factors may help you consider reinvesting your home.

Latest Interest Rate

When your current interest rate is higher than available housing loan packages on the market, it is time for you to consider reinvesting. Go back to your current bank or financial institution and ask them to reprice your loan package. Your lender might give you an offer. Make a comparison between this offer and with offers from other lenders to see whether you should switch or stay put.

Lock-in and Clawback Time Periods

Lock-in period is when your lender give you a penalty if you want to fully repay your loan. Most of housing loans have a clawback period wherein the lender will claim back “giveaways”, such as legal subsidies, that they “gave” you when you take up your housing loan. Lock-in period and clawback period are different from each other. Because of this, reinvesting is not recommended.

Loan Quantum

If the amount of your loan is larger, the savings for the same decrease in interest rates will also be also larger. Yet fixed cost to reinvesting does not vary much with quantum loan. The difference between your current and reinvesting interest rates has to be larger for a relatively lower loan as fixed cost takes into a more significant portion of your interest rate savings.

Identify Interest Rate Movements

Analyze how interest rates flow. If you are currently on a fixed rate package and believe interest rates are dropping, you may want to reinvest to a floating rate package. Conversely, if you are on floating rates and believe interest rates are increasing, switching to fixed rates may be a good choice.

Personal Financial Evaluation

If your financial state changed, consider reinvesting. Give some thought to take fixed rate package. Consider increasing your loan quantum. When your monthly income increased and you want to decrease interest payments, try to reduce your loan tenure.

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