Posts Tagged ‘Loans’

Comparing Singapore Home Loans: A Quick and Easy Guide

September 24th, 2013

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A home loan will put a lot of pressure on your finances, so it’s very important for you to weigh all the pros and cons before you apply for one. Below are a few important matters you should think about in choosing a loan plan.

1. Types of Loans

There are many different kinds of home loans offered by banks and financiers. They fall into the following main categories:

Basic Types:

- Fixed-rate

- Variable or floating-rate

- Combo or hybrid

- Interest-offset

- Interest-only (not applicable for residential properties, as per the Monetary Authority of Singapore, MAS Notice 632, September 2009)

- Cask back or cash incentive

The most common home loan plans are the fixed-rate and variable loans. A fixed-rate loan involves a static interest rate for the first 2 to 5 years. After that period, the bank lets the rates float.

A variable loan, or floating-rate loan, on the other hand, involves interest rates that rise or fall throughout the whole tenure. The rates for this type are normally lower than those of the fixed-rate loan, since there is less need to make up for the consistency.

Our previous article, “Fixed-Rate Versus Floating Rate Loan Packages in Singapore: Which is Right for You?” illustrates these loan plans in more detail. You can proceed to that section if you need further information. If you would like to know more about the other types of home loans, you can click this link.

Variations

In addition to the six basic categories listed above, there are variations to each. Each one can be based on the SIBOR, SOR, or the average of both. For instance, a fixed-rate loan can be a SIBOR-pegged fixed-rate loan, or SOR-pegged fixed-rate loan, and so on. Further, a home loan may come with an interest cap.

If you need to learn more about how SIBOR and SOR affect mortgages, we have a section on “Understanding SIBOR and SOR Based Home Loans in Singapore”.

Is this too much to take in all at once? Don’t worry. You can always call on a mortgage consultant to assist you. He or she can enlighten you about the various loan plans available, and even guide you regarding which one to choose.

2. Interest Rates

Interest refers to the price you need to pay for borrowing the money. It’s one of the most important things you need to consider when considering a loan. Of course, it’s always preferable to pay a lower price.

You need to know how much interest you have to pay throughout the whole loan duration, and not just at the start of the tenure. You must then compare between packages and determine which one is more suitable for you.

iCompareLoan.com has an excellent loan analysis system, which can help you compare the interest in different loan plans. You will be provided with up-to-date reports on interest rates for most of the housing loans available in Singapore.

Below are sample tables and charts as presented in our reports:

Figure 1

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Figure 2

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3. Loan Conditions

On top of interest rates, you need to compare other important features that can affect your finances. Housing loans come with certain conditions, such as a lock-in period, a claw-back period, as well as conversion or repricing options. These can affect your decision whether to pay in partial installments or in full, or in case you choose to refinance or resell your home.

Lock-in Period

Some loans have a lock-in period, which is usually the first 2 to 5 years of the tenure. If you make any advanced payments within this time, you will incur a penalty – which is often at 1.5% of the repaid amount. That means spending more money than you need to, so remember to take note.

Some loan plans don’t have a lock-in period, and those may be more suitable for you if you intend to pay in advance.

Claw-back Period

The claw-back period is routinely within the first 3 years of the tenure. At this time, a full reimbursement of the loan means refunding all the benefits, like legal subsidies or property valuations. All these benefits may come up to an amount around S$2,000 to S$3,000.

It’s important to take note that the MAS declared that all refunds available in a home loan, even legal subsidies and stamp duties, must be subtracted from the total purchase price. This, in effect, will reduce the loan quantum that you are eligible for. Many banks have thus stopped offering all such benefits since the middle of last year. A few banks still offer subsidies, and these entail a claw-back period.

Conversion and repricing

Some banks or financing institutions offer a one-time conversion for free, allowing you to transfer to another loan plan with more favorable terms. Before you apply for refinancing to switch to another bank, ask your current bank if they offer free conversion. This will cost you less money, and may be a better option for you.

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All About Building Under Construction (BUC) Housing Loans

May 25th, 2013

Despite the risks in buying partially-completed properties, some home buyers in Singapore prefer to buy residences that are still under construction. The main advantage in this is that it gives buyers a good chance to avail of the most attractive residential properties – those units with the most desirable location, a pleasing layout or an amazing view of the city.

In addition, an early purchase also comes with a lot of savings. Property developers usually offer attractive benefits for early buyers, such as discounts on the price of the unit, lower administrative costs, or the integration of stamp duties.

Whatever your reasons are for buying a home that is still under construction, you’ll probably need to acquire a housing loan in able to purchase it. This section presents some helpful guidelines for BUC loans.

Different Types of BUC Loans

Like housing loans for purchasing fully-completed properties, a BUC loan is also available in the following options:

- Fixed-Rate Package
- Variable Rate or Floating Rate Package

  • SIBOR-based loan
  • SOR-based loan
  • Combination SIBOR-SOR-based loan
  • Board-rate based loan

In earlier years, home buyers interested in purchasing BUC properties commonly applied for interest-only loans. This is chiefly because monthly installments come out much lower, since home buyers will only need to worry about paying the interest. An interest-only plan also enables them to postpone payments until a more convenient date. However, this type of loan plan caused much controversy, and upon investigation, the Government decided to abolish interest-only loans. As of September 14, 2009, this type of loan plan is no longer available.

Payment Schedule for BUC Loans

In the standard payment scheme concerning BUC loans, home buyers need to follow a payment schedule that requires them to make payments at various phases throughout the construction of the property.

The deferred payment plan was abolished on October 26 2007, and since then, home buyers have been obligated to follow the standard payment scheme. For more information on this, see the Urban Redevelopment Authority’s article on “Progress Payments”.

Below is a diagram of a sample payment schedule, which explains the payments you need to make throughout the different phases. This can be applied to newly-built homes as well.

Figure 1: Payment Schedule for Private Property Purchase from Developer

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Mandatory Initial Payments

Before the beginning of the loan tenure, there is a mandatory fee of 5 to 25% of the purchase price, and the loan-taker is required to pay this in cash. The actual amount depends on the loan-to-value limit, and may be affected if there are any unsettled home loan. The remainder of the purchase price may be paid in cash, or through CPF financing.

The Buyer’s Stamp Duty and the Additional Buyer’s Stamp Duty may similarly be paid in cash, or through the CPF fund.

The Progressive Disbursement Plan

A BUC housing loan is not like a mortgage for property that has already been completed. A housing loan for completed properties may be disbursed in its entirety all at one time. On the other hand, a BUC loan follows a progressive disbursement scheme, in which a certain portion of the loan must be released at particular phases of property construction.

To understand this further, take a look at the diagram below:

Table 1: Disbursement Schedule for a BUC Loan

Stage

Month

Disbursed Ratio

Interest Rate

Disbursed Balance

Monthly Installment

Completion of Foundation

1

10%

1.250%

S$200,000.00

S$666.50

Completion of Superstructure

7

10%

1.250%

S$397,243.81

S$1,342.32

Completion of Brick Wall

13

5%

1.450%

S$491,658.14

S$1,731.45

Completion of Ceiling/Roofing

17

5%

1.450%

S$587,100.42

S$2,086.91

Completion of ElectricalWiring/Plumbing

21

5%

1.450%

S$681,580.43

S$2,445.75

Completion of Roads/CarsParks/Drainage

25

5%

1.450%

S$775,079.97

S$2,808.04

Issuance of Temporary OccupationPermit (TOP)

29

25%

1.450%

S$1,267,580.46

S$4,637.19

Certificate of Statutory Completion

40

15%

2.750%

S$1,534,842.41

S$6,759.05

Source: www.iCompareLoan.com

In this example, an initial repayment of the loan is made at the first disbursement, which is in the first month, as indicated above. Ten percent is disbursed in the first month, another ten percent on the seventh month, and so on.

Disbursed Ratio refers to a percentage of the purchase price, and not the loan quantum.

Of course, this sample schedule is only for illustration purposes. The phases may vary in actual construction projects, though this will give you an idea of the amounts you are required to pay through each phase.

A Few Important Reminders

- Since a BUC loan is disbursed in stages, making a full payment prematurely will require you to pay a cancellation fee, which is typically between 1.5 to 2 percent of the remaining amount.

- If you made any payments within the lock-in period, you will have to pay the cancellation fee in addition to the lock-in fine.

- The interest rates for BUC loans are not always higher compared to those of loans for fully-completed properties. Since BUC loans involve a lower loan quantum and proportional interest rates for the first few years, it may thus be more advantageous to purchase a residence while it is still being built.

- If you need more information about BUC loans and the corresponding payment schedule, it would be a good idea to contact a professional mortgage consultant. You can connect with one at iCompareLoan.com – they can give you free advice and up-to-date reports gathered from the most advance loan analysis system in Singapore.

Figure 2: Sample of a BUC Loan Report

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