Are you scrolling through bank websites and wondering if they’re telling you like it is? Perhaps you or your fellow flat occupier can’t meet the eligibility criteria for an HDB loan and are looking for bank loan packages to finance your home instead. Deciding on a home loan package is hard enough what with the dizzying number of zeroes involved and all the T&Cs to read. On top of that, if you ever change your mind and want to try for an HDB loan after committing to a bank loan, you can only do so after selling your home.
That being said, here’s what you need to consider before buying a home with a bank loan.
1. Package details
Important terms to look out for is the interest rate, type of rate (which will be explained later), monthly installments and the lock-in period. A lock-in period determines the length of time that you’re not allowed to refinance or sell away your property, or else you’ll be subjected to a penalty fee. We recommend carefully reading the details of your bank loan package to find out what is provided for you.
2. Fixed rate and floating rate loans
Fixed rate or floating rate? You’re gonna see these terms come up a lot when you’re browsing for home loan packages. Basically, the former is a safe type of loan, as the interest rate given to you in the package will remain fixed for the first 2-5 years, undisturbed should there ever be turbulent market conditions that can have a rising effect on interest rates. Typically the lower rate out of the two, floating rate loan consists of a few types (SIBOR, Internal Board Rate, SOR, etc.) and is subject to change throughout the course of your repayment period. This is due to the interest rate fluctuating according to the prevailing market rate. Choose the type of loan that best fits your financial situation.
3. Property cooling measures
Thanks to 2018’s property cooling measures, Loan-To-Value rates have been lowered from 80% to 75% for first-time home buyers. LTV limits how much you are allowed to borrow from the bank. An unfortunate side effect of this measure is that you’ll need to fork out more cash/CPF for your downpayment. On top of that, there’s the Total Debt Servicing Ratio (TDSR) to keep in mind as well as it allocates a maximum of 60% of your monthly income to servicing your monthly loan payments. These measures will ultimately play a role in your decision making when narrowing down home loan packages that are right for you.
Home buyers need to pay 25% downpayment towards the seller upon completion, a notably higher figure that your standard HDB loan of 10%.
So, how much can the downpayment set you back? Let’s illustrate this with an example. Say there’s a 4-room resale HDB flat you’re looking to purchase:
|Purchase Price||Market Value||Cash Above Valuation||25% Downpayment|
The downpayment amount of $106,250 will be split into a CPF and cash upfront payment of 20% CPF + minimum 5% cash.
|25% Downpayment||20% CPF||Minimum 5% Cash Upfront|
The rest of the 75% will be the home loan amount which is $343,750.
Taking this all into consideration, homebuyers that are looking up bank loans have a lot to bear in mind before committing to a home loan package. But hey, taking up a bank loan does have its upsides. Say you’re ready to buy your next home after fulfilling your first home’s Minimum Occupation Period (MOP). Since you’ve never taken out an HDB loan, you’ll be unscathed from the hefty 50% cash proceeds you’ll otherwise need to fork out if you’re on your second HDB loan. Yay!
Have we piqued some unanswered questions? Learn more about our Mortgage Advisory Service for free! Or call 9755 9103 now.