Every Singaporean is in debt. Yes, you see it right, housing loan, credit card debt, car loan, renovation loan, and many others on hire purchase. However, it is without doubt that housing loan will be the biggest debt one has to take on. Therefore it is important to choose the correct loan package.
A typical loan will last for about 2-30 years, and below, I listed some consideration :
This is the most important consideration. Most banks offer “promotional” rates, but the reality is that the borrower do not get to enjoy it very much. This is because by the time the borrower starts to draw down the loan, the promotional rate will almost be coming to an end.
Most banks peg the housing loan rates at a discount off their bank lending rate (BLR) and for different period for the promotional rates. Therefore one has to consider and compare between different banks the rates both within the promotional rates period and beyond.
“Promotional Rate” starting date
This is where the bank starts to ripe the customers off. While they may say that there is a promotional rate for say a period of 3 years, for example. However, the starting date for the “promotional rate” may be the day the bank approved the loan.
Therefore if a buyer is buying a property that is under construction and the payment is a progressive or deferred payment scheme, by the time the buyer draw down the loan, a substantial part of the promotional period would have lapsed.
Early redemption penalty
Will the bank charge you a penalty for early redemption? The bank incurred much time and money to process the housing loan for the buyer, and it is understandable that there will impose a penalty for early redemption. Check the fine print for the amount of the penalty.
Does the bank pay for your legal fee? The amount can be substantial.
If you wanted to refinance your housing loan, what sort of penalty is there? Can you refinance it with another bank at a cheaper rate without much cost?
Loan period adjustment
Can you prepay the bank partially without additional cost? This will help in reducing your interest cost should you have spare cash.