Home Loans

Singapore Home Loan Basics

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Home Loan – A loan in which the borrower puts up the title deed to real estate as security (collateral) for a loan. If the borrower doesn’t pay back the debt on time, the lender can foreclose on the real estate and have it sold to pay off the home loan.

This simply means that you are securing the loan against your home. Failure to make repayments on the home loan could therefore result in you losing your home. In order to avoid this you should ensure that you can comfortably afford the repayments on the home loan before you make any commitment.

 

Basic Components to a Home Loan

  • Loan amount – this is the amount that you wish to loan. It can be typically up to 80 or 90% of the property purchase value.
  • Interest rate – this is how much interest you will have to pay annually to the lender for the loan. Interest rates can be fixed, floating, or combination of both over the duration of the loan.
  • Loan tenure – this is the duration over the loan is planned to be repaid. For mortgages it ranges from 5-40 years.
  • Lock-in period – this is the duration in which you are contractually obligated to service your loan with a particular bank. If you redeem your home loan or make a partial prepayment, you may be subject to penalties.

While there might be many options to consider, you can use tools like the home loan calculators to make your comparison process a lot easier. MoneySmart’s home loan wizard for example,  will show you the payment and interest rates of the latest home loan packages in Singapore.

 

Home Loan Repayments
The home loan is typically repaid to the lender monthly. The repayment is combination of principal repayment and interest payment. Using these three parameters, you can calculate your monthly home loan payment.


The Role of Home Loans

  • New Purchase Home Loans – People typically take home loans to finance their purchase of a new property. The property can also be for investment or for own use (called principal residence).
  • Refinancing – From time to time you may find that some banks may offer better rates than your current loan package. In such cases, you can refinance your home loan to these banks to save money as you’ll be paying lower interest.Refinancing typically happens because most banks offer initial discount rates which turn higher after the initial lock-in period expires. People then refinance to get the lower rates again. You can use online tools like the MoneySmart Refinancing Calculator to compare your current home loan with new packages and see if you can save.
  • Home Equity Loans – Over time as you pay up your home loan, and your property appreciates in value, you may want to take a home equity loan to free up some additional cash. This works because now your home, which is the collateral is worth more, which allows you to borrow more against your home. To find out more about home equity loans here.

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