How Do I Apply for A Home Loan?
Before applying for a home loan, you must first be eligible to take out a home loan. What a mortgage broker, financial institution, or bank look for when during the approval process is your age, type of property, location, and the property’s current market value.
But the most important thing that they look for is your ability to pay. A few things that they will look for are your:
Type of profession
The amount of your income will be checked to see if you can cover the monthly payments that will be incurred. Your work or profession will help with determining how stable you are. A start-up business owner might get a different package compared to a supervisor of 20 years in a Fortune 500 company.
Having a good credit history is very important if you want to have your home equity loan approved. People with credit history full of red flags and unpaid debts are usually shared among other financial institutions. This kind of information is shared to keep loans away from people that have a habit of not paying their debts on time, or even not at all.
How Do I Choose A Home Loan?
Before applying, it’s important to understand the different types of Home Loans available in Singapore and how affordable they are. A home loan is a term loan, meaning there is a specific schedule of repayment and includes a fixed or floating interest rate. A fixed rate may sometimes be ideal but you could also take advantage of low market interest rates by opting for a floating interest rate.
The type of home loan you apply is directly affected by one of the following interest rates:
SIBOR and SOR Rates
The SIBOR or Singapore Interbank Offered Rate is a reflection of how much it would cost if banks were to borrow unsecured funds from each other. SIBOR-based home loans are the most popular among borrowers and, as such, offered by most banks.
The SOR or Swap Offer Rate, on the other hand, is heavily dependent on the US economy and is a less common option for borrowers. It’s a reflection of the projected interest rate if the same amount of money were to be borrowed in US dollars.
Both the SIBOR and SOR are publicly available so there is no worry of being overcharged or misled by banks. These two are the basis of prevailing interest rates and are common options when it comes to home loans. Loans attached to SIBOR or SOR have a spread or margin added to the interest rate.
The board rate is the minimum rate the bank charges in addition to a spread. With board rate-based home loans, the interest rate is charged at a fixed premium, either in excess of or less than the board rate.
HDB Concessionary Loan Rates
For those who lack the financial capacity for a home loan, Singapore’s Housing Development Board (HDB) offers the most secure type of low-income home loan: the HDB concessionary loan. Not everyone can qualify for one, though, as it has very stringent requirements. It has an income ceiling of $12,000 to ensure that the ones who qualify are those who need it the most. Of course, you will still need to show financial capacity, especially as the loan amount goes up. The best thing about this loan is that its interest rate, which is 0.1% above Singapore’s Central Provident Fund (CPF) rate, stays solid regardless of market fluctuations.
Fixed Interest Rate vs. Floating Interest Rate
As the names suggest, interest rates can either be fixed or variable. Each has its pros and cons, which could help you decide what type of loan to apply for.
Fixed interest rates are ideal for borrowers who are looking forward to a fixed budget during the repayment term because the monthly instalment amount stays the same for the first few years. It’s also a good choice if prevailing interest rates are low at the time of loan application because this rate will remain unchanged for the duration of the fixed-rate period. After said period, a fixed-rate loan becomes the same as a floating-rate loan.
Floating interest rates can be varied by the bank depending on their determined reference rate. This is bad news if the reference rate goes up, but it could also lead to big savings on monthly instalments if the reference rate goes down.
GoBear is a hassle-free home loans comparison website whether you’re an entrepreneur seeking a property for a small business or a middle-class employee trying to find a low-income home loan that will fit your budget. Check out the prevailing home loan interest rates today and let GoBear guide you to the home loans that suit your lifestyle and finances.