If you were one of the lucky few that secured a unit at Lake Life over the weekend, you may have really lucked out on a bang for buck property purchase. It’s kind of like wanting to buy a new iPhone 6, and walking into Sim Lim’s mobile phone shops after the Jover Chew scandal. They’re so happy to see anyone at all, they might even offer $50 worth of free pizzas.
With property prices continuing to drop and fears of oversupply in the market, as EC launches face off with BTOs and other private properties, the Lake Life developers furthered lowered the price per square foot (psf) from an indicative $890 psf to $857 psf.
Now that you’re already 5% committed to possibly the biggest loan of your life up to this point, your next biggest concern is what home loan to choose. With every banker at the showroom telling you their packages are the best thing since social media vigilantes, how do you know which home loan is best for you?
Don’t worry, we’ve got your back. Here are the 3 most important things you need to know before jumping into such a huge decision:
1. Consider choosing a home loan with a fixed interest spread
Home Loan SIBOR / SOR rates are still rumored to increase over the next few years in Singapore. This means that even though you may choose a package that is super low in the first few years, it may not make much of a difference.
If you choose a Progressive Payment Scheme, it would mean that you are spending the first few years with low interest rates, paying for the very small amounts of disbursement from the bank. 10% here and there won’t add up to much interest any way, and by the time the main bulk of the disbursement happens, your interest rate (and the SIBOR) would have increased by a lot.
Choosing the more expensive Deferred Payment Scheme will mean your 1st year interest rates start when you get your Temporary Occupancy Permit (TOP). However, you still have to consider what the SIBOR or SOR will be 3 years later.
How do you escape this conundrum? There are packages like one offered from a foreign bank in Singapore that is currently offering throughout rates for borrowers. This means that even though you cannot ever escape from the SIBOR/SOR, your margin with the bank stays at a constant 0.98% for the full tenure of the loan.
You’ll have less to worry about in 3 years time when the main bulk of your loan lands on your head, along with your house keys! If you’re interested in finding out more about these packages, MoneySmart’s comprehensive Home Loan Wizard will allow you to compare the latest home loan rates in minutes.
2. Avoid Board Rates that are not transparent
Board rates/Variable Floating rates from banks are usually quite dangerous. It’s like ordering $50 worth of pizzas for your handphone shop friend, and finding out later the bill has been changed to $80 because the pizza company felt like it.
Banks are free to change these rates at their own discretion, so while they may look low in the first 2 years, they usually go up in the 3-4 year (when your main disbursement happens). Your view of Jurong Lake will start to look more like an easy way to end all of your life’s problems!
However, there are some banks that do offer a good alternative to the Board rate. One local bank pegs its rate to their Fixed Deposit interest rates rather than just giving you an interest rate that they can change any time at their whim and fancy.
The logic as to why this is good is because the bank is more unlikely to increase their home loan rates because that would mean increasing their Fixed Deposit rates too, which in turn means they’ll have to pay their customers more money as well.
This particular package also offers really good margins for the first 3yrs at 0.80% and only increases to 1% in the 4th year (when your main disbursement usually happens). You buy yourself more time to decide on refinancing in year 4, and can enjoy your “Lake Life” a little longer.
3. Don’t just look at rates. The bank matters as well
Assuming you know what every bank in Singapore worth looking at is offering you for your new Lake Life EC, there’s still more to consider. For one, it’s really hard to source for all the home loan interest rates from all the banks, and this is where we can help you with that.
Secondly, even if you have all the numbers, it’s important to note that some banks have better track records with mortgages than others who just come into the market once in a while with a good rate. Choosing the right bank for you also matters in the long run when you need to reprice your home loan after you TOP.
You would have to choose a refinancing package from whatever they have available in 4 years time and if they aren’t particularly interested in home loans during that year, you are going to get some really lousy rates offered to you.
What Should You Do Now
Before making such a big decision, it’s best to speak with a mortgage specialist from MoneySmart.sg and let them figure out the best choice for you. It’s absolutely free and it will give you a better picture on which home loan to take based on your own financial needs.
It’s important to note that if you have already paid your Option To Purchase (OTP), you should not wait until you get your Sales & Purchase (S&P) Agreement before applying for your home loan. If you wait till you get your S&P, you may be cutting it a little too thin to allow for the administrative work required if you wish to use your CPF to make the remaining downpayment.
Should your home application be rejected by HDB, most banks provide a clause that will allow you to waive the loan cancellation fee. But applying for a loan early means that you will be able to lock in whatever rates are being offered at that point in time, so it makes sense to apply for your loan as early as possible.
The 2 types of bank offers discussed in this article are the best ones you could choose for Lake Life, and would be your best bet at avoiding having No Life just trying to pay for your instalments every month.
Have you bought a unit at Lake Life? What are some of your concerns with the EC market now? Share your thoughts here.
Lake Life Condo.net