This is perhaps one of the most common questions on anyone’s mind when they are thinking of taking up a bank loan for their home purchase. And rightly so, given the variance of different housing loans available in the market right now. So how do you go about determining which housing loan package is best for you?
If you are not planning to purchase your property within the month, it is important to note that banks adjust their loan rates every few weeks and what you see offered in the market today may be very different from what’s offered two months down the road. You can use the MoneySmart Housing Loan Wizard to check out the latest and most up-to-date housing loan rates in town before purchasing a property.
If you are looking to buy your property within the month and are wondering which bank gives the best housing loan, you first need to determine what your preferences are. Everyone’s profile is different and your preferences will determine which bank will give the best housing loan.
What’s best to one buyer could be vastly different from what’s best to another. Here are three points to consider when determining your housing loan preferences.
If you intend to purchase the property to live in (owner occupancy) for the long term (e.g. more than 10 years), it’s very important to select a housing loan package that offers good rates throughout the loan tenure.
Do not simply focus on the rates during the first 3 years as it’s the rest of the years beyond that point that really matters. Do not be in a hurry to assume that you can easily refinance your loan after 3 years either. 3 years from now, you may not even find a better loan package than what’s offered today and thus might find yourself stuck with a package with higher interest rates from year 4 onwards.
If you intend to purchase your property and sell it off within a few short years (3-5 years), then you should focus on loan packages that give the lowest rates within those first few years. Rates after that do not matter (as you would have already likely sold off your property).
Some banks offer packages pegged to the SIBOR base rate, some offer those pegged to the SOR base rate and some offer both. The SIBOR base rate is the lending rate within banks in Singapore while the SOR base rate is generally affected by what’s happening in the United States (exchange rates, interest rates etc).
SOR is more volatile than SIBOR and gives higher risk takers a chance to capture periods when SOR drops way below the SIBOR (SOR dropped below 0% in Aug 2011) while being able to ride period it swings above SIBOR. Lower risk takers are typically happy with the SIBOR as is more stable and less volatile. You may want to check out the historical trend of SIBOR & SOR.
Financial Managment Status
Some buyers like to know exactly how much money is coming out of their bank accounts (or CPF) every month and are willing to pay a bit more for that certainty. Fixed rate packages, which are loans with fixed interest rates over a few years (1-5 years), allow for this certainty but the rates always start off higher than floating rates.
Floating rates change on a daily basis and if you feel that interest rates are going to stay low for the next few years, you might want to take that bet and opt for floating rates.
MoneySmart helps housing loan seekers by consolidating the latest rates from all banks, making it a one stop shop for all home loan rates. Best of all its free! Compare housing loan rates now!
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Tags: Home Loans