Home loan terms are precise. So precise that, in the event of a dispute, your chances of wriggling free are about the same as a sick snail in a Greek wrestler’s armpit. It pays to understand the exact definition of these terms, because in a court of law, ignorance is not an excuse. Signing is binding, so check these terms first!
Amortized Mortgage: To amortize a debt is to gradually diminish it through regular payments. This just means paying off the debt with the interest, in monthly installments.
Appraisal: Rather than stand around and argue about how damaged or valuable something is, an expert gets called in. When the expert delivers a verdict, that’s the expert’s appraisal.
Appreciation: When something goes up in value.
Board Rate: An index that your bank uses to determine your interest rate. Unlike SIBOR or SOR, which are used by everyone, a board rate is specific to your bank.
Bridging Loans: A bridging loan is a short term loan. It’s usually taken out by people who are buying new houses, but haven’t gotten all the money from selling the old one. The idea is that they’ll pay the bridging loan once the sale of their old house is complete, and they won’t be sleeping in cardboard boxes in the meantime.
Cancellation Fees: This is the money you pay for cancelling a housing loan. If you accept the offer letter but change your mind before taking the money, you will have to pay a small percentage of it.
Cashback: The lender refunds a percentage of the housing loan (i.e the cashback) for so long as you stay with the bank.
Certificate of Statutory Completion (CSC): This is a certificate that verifies your house is stable, and won’t collapse while you’re in it. The Commissioner of Building Control will issue the CSC to a building when it’s complete. The building can only be occupied when a CSC or Temporary Occupancy Permit (TOP) is granted.
Combo Housing Loan: A combo housing loan is when a single loan is divided into two or more separate loans, with different payment schemes for each one. For example, a $100,000 loan might be divided into two $50,000 loans; one of them on a fixed rate, and the other on a floating rate.
Clawback: When you pay back the mortgage within a specified period, your bank may ask you to repay subsidies that were given to you. These subsidies are usually legal subsidies, such as valuation fees, fire insurance premiums etc.
Clawback Period: The period of time during which your bank has the right of clawback. In Singapore, the clawback period is usually 3 years.
Collateral: A security for the repayment of a loan. If you can’t pay back the loan, the collateral is taken by your bank as a way to cover your debt. In real estate, the collateral is usually the property.
Conversion Fee: The fee for changing the terms of a home loan. Typically, a conversion fee will be charged when switching from a fixed interest rate to floating, or vice versa.
Conveyance: The document or instrument by which the transfer of property from one party to another is affected.
Default: The failure, for whatever reason, to make a payment or fulfill a commitment.
Down Payment: The required initial payment for purchasing something. It’s usually expressed as a percentage of the total cost (e.g. 15 percent down payment)
Due Diligence: The process of investigating the condition and legal status of assets.
Equity: The difference between the market value of a property and the claims held against it.
Equity Loan: A cash loan secured against the value of a property. For example, if a person owns a home worth $100,000, but currently does not have mortgage on it; they may take an equity loan at 80% loan to value (LTV) or $80,000 in cash in exchange for a mortgage on the title.
Fixed Interest Rate: An interest rate that remains fixed for a certain period, regardless of market conditions. For more details, look here.
Floating Interest Rate: An interest rate that moves in tandem with market conditions. Again, see here.
Foreclosure: Related to Collateral. This is when someone can’t pay their housing loan, and the bank takes back the house.
Freehold: An owner of freehold property owns the land and building in perpetuity (no end).
Guarantor: If you default on your debt, your guarantor will have to pay up for you. Most home loans require you to have one or more guarantors.
Hypothecate: To give property as security, without relinquishing ownership of said property. A mortgage is a good example of a hypothecation.
Income Property: Property which produces income, usually from rental. Tax rates are different for income property.
In-principle Approval/Pre-approval: An amount the bank claims it will loan you, if and when you buy a house. It’s just an agreement; there is no actual loan yet. Pre-approval is sought before shopping for a house. This way, you and the seller have a clear idea of how much money you have available. Pre-approval usually lasts a month.
Installment Payment: The regular payments (usually monthly) due on a mortgage loan. Also referred to as “Mortgage Payment”.
Interest-offset Accounts: When you link the interest in your bank account to your mortgage loan. The interest you would earn on your bank account is then used to offset the interest on your mortgage.
Interest Only Payment: When your monthly payments only cover the interest, without paying back the principal. Generally used by people investing in the property, who are waiting to sell it at a higher price.
Letter of Intent (LOI): An agreement between parties to proceed with negotiations, or to execute a project. This is not legally binding, so it’s possible to back out afterward.
Letter of Offer (LO): The contract that the bank offers, when you take out a loan. Once you make a valid acceptance (sign the LO without being under duress, had all your questions answered, etc.) the document is legally binding.
Lien: A lien is a legal “hold” on a piece of property. If a lender defaults, the holder of the lien (not always a bank) can force the lender to sell the property. A lien can also be used to prevent the sale of property, or to prevent the transfer of the title deed.
The party holding the lien is always paid first, in the event that the property is sold. Say you take out a mortgage on a house, and the bank has a lien on it. When you sell the house, the bank gets the money instead of you.
Loan Origination Fee: The money you pay to a broker, who then goes out and secures a loan for you. Yes, seriously, you pay money to borrow money.
Loan Originator: You know the guy you paid to find you a loan (see above)? He also gets paid by the bank, for finding someone who wants to borrow money. So the banks pay money to lend money.
Loan Quantum: Fancy term for the amount of money you borrowed. The only link I can see between this and quantum physics is that even science can’t measure it properly.
Loan Tenure: The period of time that you will take to fully repay your loan.
Loan to Value (LTV): The ratio of a loan amount against the value of the property being used as collateral. Thus, a house worth S$500,000 with a mortgage of S$400,000 would have a loan to value of 80%. Most banks in Singapore will offer loans with LTV of 80% and less. The maximum LTV that lenders can legally go to in Singapore is 90%.
Lock-in Period: The number of years that you are tied to your bank. Attempting to switch banks or alter loan terms during the lock-in period carries a host of penalties, which vary based on your loan.
Market Price: The actual selling price of property.
Market Value: The written, estimated value obtained by factoring in location, assets, demand & supply. Estimates for market value are typically provided by professional valuers.
Mortgage: Interchangeable with “home loan”. This is when your house is put up as collateral for a loan.
Mortgage Broker: A person who does all the hard research to help you find the best mortgage. They also help you with all the relevant paperwork. There is typically no fee for their service, as they are compensated by the bank for bringing in clients.
Mortgage Reducing Term Assurance (MRTA): A form of life insurance. In the event of death or serious disability, the mortgage is reduced by a certain amount.
Net Worth: Assets minus liabilities. Here, assets include cash. Also referred to as shareholders’ equity.
Payment Holiday Housing Loan: A relatively new type of mortgage in the Singapore market. There are designated “breaks” in the loan tenure, during which you don’t need to pay your mortgage.
Prepayment Penalty: The fee that banks charge if you repay your home loan too early (e.g. before the end of your loan tenure). Usually a percentage of the loan quantum.
Prepayment: Payments that you make in addition to your monthly installments. Might result in prepayment penalty (see above).
Principal: The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal Balance: The outstanding balance of principal on a mortgage, not including interest or other charges.
Refinancing: Switching from one housing loan package to another, usually to get better rates.
Repricing: Switching from one housing loan package to another, without changing banks.
SIBOR: Singapore Interbank Offered Rate. This index tracks the interest rates at which banks borrow from one another. SIBOR is open to public scrutiny.
SOR: Swap Offer Rate. A published benchmark or reference rate for short term interest rates in Singapore. It represents the banks’ average cost of funds for commercial lending. SOR is open to public scrutiny.
Temporary Occupancy Permit (TOP): The Commissioner of Building Control issues a TOP as a prelude to a CSC. You can only move into a building which already has a TOP, and only for a short duration. After that, a building can only be occupied when it has a CSC.
Title: The ownership rights.
Valuation: Estimated price or value of a property. This can be given by a professional valuer (appraiser) on an indicative or official basis.
If you’re confused about home loans, visit MoneySmart. The MoneySmart Home Loan Calculator helps you understand more about factors affecting your loan. It also allows you to view the latest interest rates from Singapore banks.
Are there any terms you aren’t clear on? Ask us in the comments and we’ll clarify it!
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Tags: Home Loans