Some basic insights on home loans and ways to avoid bad loans

Buying house in Singapore?

Buying house in Singapore can be affordable if your bank account has 8-digit numbers. But, if you do not have bank account that’s as long as telephone number, you will need to take up a loan. Before deciding on getting a loan, we will need to compare which loan package has the lowest or highest compounding interest. These days, we have the privilege to access to information easily with convenience and we can retrieve information we need when it comes to loan package. Yet, there are some who chose the bad loans package. Let’s see what the bad loans are and why they ended up signing up for it.

How to avoid bad home loan?

How home owners landed with bad home loans?
Although people these days have the privileged to access information easily but searching for loan articles to read tend to be boring and uninteresting article to read on the weekends. Besides, loans do not have wide awareness as it is not like fast moving consumer goods. You don’t buy houses every now and then. Our property agent or banker were the ones that feed us information and recommendations of the loan package when we are in our biggest decision-making situation. Hence, we tend to miss the information given on the internet.

Banks tend to package the loans with other benefits to divert our attention, but the interest rates is the main star of your package. There isn’t any advantage for signing up loan with higher interest rates but rather got suckered. So, how do you end up signing for bad loans?
1. You insisted for HDB loan, even when you can afford the cash outlay
2. You are drawn towards exotic options
3. You didn’t think through when you take up Board Rate besides the Fixed Deposit Home Rate (FHR)
4. You got convinced with the refinance idea
5. Non-mortgage expert finds you a home loan

1. Is HDB loan really that good deal? Even when you can afford for cash outlay
Just because it is from the government, the HDB Concessionary must be the cheapest loan, right? Truth to be told that HDB loan is one of the most expensive home loans from bank since year 2008. For almost two decades, HDB loans have been charging with an interest rate of 2.6% per annum. If you had used a bank loan in between 2008 to 2012, you could have the interest rates as low as 1.4%. But why people still end up with HDB? Firstly, they assumed loans provided from the government is cheaper. Second, the initial cash outlay with HDB loans are more tempting at the beginning because they can finance up to 90%. Most banks can only finance up to 80%. But remember that you can always refinance from an HDB loan into a bank loan. Imagine in year 2011 when you purchase your Tampines 3 bedder HDB unit with the interest rate at 1.4%, that’s crazily low compared to now at 2.6%.

2. You’re attracted to exotic options
We are always looking for the cheapest and best options whenever buying a package. Same goes to signing for loan. Your end goal is looking for the cheapest options. But, how makes you consider paying more for the next 25 years? A leather key pouches? A complimentary coffee table? For instance, back in year 2010, there’s an option called hybrid loans that adding SIBOR and SOR to determine your interest rate. There’s another option like interest-offset, where part of your fixed deposit is treated as though it is already paid into the home loan. Because when a loan is already this complicated, the best thing to do make things even more confusing but adding in bizarre elements. It’s rather rare that exotic options may have good deals while most of the times the deals are rather just some marketing buzz with a hidden agenda of being the dearest loan in the market.

3. You anyhow take up Board Rate apart from Fixed Deposit Home Rate
Do you know taking up the Board Rate is letting the bank determine their own rates whenever, wherever? Besides listening to your bank’s relationship manager, you should evaluate and research what kind of rates are being offered. Fixed Deposit Home Rate is more reasonable compared to Board Rate’s offer due to it’s FHR loans are tied to fixed deposit rates. It is clearly visible, and banks are less eager to raise the rates drastically. If they do increase, they will need to pay more fixed deposits. However, if you allow your bank to play around with interest through other BR loans, you will regret for doing so.

4. You got convinced with the idea of refinancing
When you sign up for loans, it was the lowest rates moment, but the rates shoot up in four years and it always shoot up on the fourth year unless you have a fixed rate loan. During this situation, the banker will have something on their sleeves and offer you to refinance when the time comes, and you will need to fork out $2,000 to $3,000 for the processing fees. Though it is affordable but don’t forget that cheaper loans may not be available for you to refinance. Plus, you would need to go through the tedious process again with resubmitting your documents and waiting for loan approval. Therefore, our advice is you don’t have to pick the cheapest but rather the cheaper in the long term, which is the first three years. Do check the terms and conditions before signing up to help you better understand how it works.

5. Non-mortgage expert finds you a home loan
During the house buying process, property agent or house insurance agent tends to recommend you their preferred banker. You could but why should you do so? They are not experts and they have no idea what they are recommending, definitely not the cheapest rates. Nowadays, you can always use your smartphone to search for loan comparison instantly and look up for the information instantly.

In conclusion, if research and survey is done, home owners will not be regretting and ended up paying for more due to interest rates. Besides, make sure your mortgage broker is someone who can advise you and help you with the paper works for your loan application.

So have you do your research before making any home loan commitment?