Housing Loan Singapore | Mortgage Home Loan

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Why home owners refinance

Why home owners refinance?

Refinancing is the process of transferring your outstanding loan from Bank A to Bank B. After the refinance process, you need to service your monthly installment to Bank B instead of Bank A.

There are few reasons why clients refinance their home loan:

Lower interest rate = higher savings

Case study:

Mr Alan is paying 3.5% interest on his home loan of $800,000 with Bank A. The remaining loan tenure is 30 years and his monthly home loan installment is $3592.36.

At that time, Bank B is having a promotional rate of 1.99% fixed for the 1st 3 years. Mr Alan refinance his loan to bank B and maintain the loan tenure of 30 years. He will be paying an interest rate of 1.99% instead of 3.5%. His new monthly installment is now $2952.96. His monthly installment is reduced by $639.40 monthly.

If Mr Alan stayed with bank A, indicative interest paid for the next 3 years are $81,608.20.
After refinance his loan to bank B, indicative interest paid for the next 3 years are $46,028.56.
Total indicative savings for the next 3 years are $35,579.64

Extend of home loan tenure

Some clients refinance because they want to extend their home loan tenure = decrease their monthly installment. This may be due to their new purchase of another property resulting on tight cash flow.

Mr Alan original loan tenure was 30 years. His monthly installment is $2952.96.

He could refinance and extend his loan up to 40 years (Formula to calculate is 75 years – younger applicant age = max loan tenure capped at 40 years). Therefore, his monthly installment is now $2418.40. His monthly installment was reduced by $534.56.

Reduce of home loan tenure

 

Since it is possible to extend the loan tenure, some clients refinance to reduce the loan tenure. The benefit of reducing the loan tenure is to reduce the total interest paid to the bank.

If Mr Alan package is 1.99% for the next 40 years on his $800k loan, total indicative interest paid to the bank for the next 40 years is $360,831.

If Mr Alan reduces his loan tenure to 30 years, total indicative interest paid to the bank for the next 30 years is $263,064.

Total difference is $97,767.
The shorter the loan tenure, the lesser the interest paid to the bank.

Changing of home loan type to better suit the needs

Some clients refinance to get a package that better suit their needs. This might be due to change of lifestyle. Example – from Sibor/Sor package (floating and unstable) to a fixed rate package (known interest rate and stable installment).

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Uncompleted Property Lock In

Home Loan Guide – uncompleted property lock in period

For uncompleted project (building under construction – BUC), most Singapore home loan packages state no lock in. Is it true?

Take note that there is a clause in the contract – cancellation clause.

Cancellation clause – the loan that is not disbursed is subjected to a cancellation fee of 1% or 1.5% penalty.

Example: Total loan is 800k

Package A
Year 1: 3m Sibor + 0.25%    ->10% disbursed
Year 2: 3m Sibor + 0.50%    -> 10% + another 15% = 25% disbursed
Year 3: 3m Sibor + 0.75%    -> 25% + another 25% = 50%  –> client cancel loan
Year 4: 3m Sibor + 1%
Thereafter: 3m Sibor + 1.25%
No lock in

If client decided to cancel his loan at Year 3 where only 400k (50% of 800k) is disbursed, the remaining 50% is subjected to the cancellation clause.

So penalty involved is 1% (or 1.5%) x 400k = $4000 (or $6000).

If the package comes with lock in period, the additional penalty 1.5% will impact on your disbursed amount.

Thus, you total penalty involved are:
400k disbursed amount x 1.5% penalty + 400k not disbursed amount x 1% penalty.

Talk to a Singapore mortgage broker today for your home loan needs.

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Uncompleted Property Guide

Choosing the right home loan for uncompleted property

Package A
Year 1: 3m Sibor + 0.25%
Year 2: 3m Sibor + 0.50%
Year 3: 3m Sibor + 0.75%
Year 4: 3m Sibor + 1%
Thereafter: 3m Sibor + 1.25%
No lock in

Package B
Year 1: 3m Sibor + 0.75%
Thereafter: 3m Sibor + 0.75%
No lock in

Which is better?

It depends…..

If buying a completed property, choose package A.
The reason is because full disbursement of funds is at the start of the loan!

If buying an uncompleted property (property still under construction), choose package B
The reason is because of its progressive payment.

If property TOP on 2016 and package A is chosen

Package A
Year 1: 3m Sibor + 0.25%         –> 10%
Year 2: 3m Sibor + 0.50%         –>10% + another 15% = 25%
Year 3: 3m Sibor + 0.75%         –> 25% + another 25% = 50%
Year 4: 3m Sibor + 1%                 –> 50% + another 20% = 70%
Thereafter: 3m Sibor + 1.25%   –> 70% + another 20% = 90%
No lock in

During year 4, 70% of your loan is disbursed and you are paying an interest rate of 3m Sibor + 1%. At year 5, 90% of your loan is disbursed and you are paying an interest rate of 3m Sibor + 1.25%.

If Package B is chosen,

Package B
Year 1: 3m Sibor + 0.75%         –> 10%
Year 2: 3m Sibor + 0.70%         –> 10% + another 15% = 25%
Year 3: 3m Sibor + 0.75%         –> 25% + another 25% = 50%
Year 4: 3m Sibor + 0.75%         –> 50% + another 20% = 70%
Thereafter: 3m Sibor + 0.75%  –>70% + another 20% = 90%

During Year 4 and 5 where your disbursement is the highest, the interest rate is still at 3m Sibor + 0.75%.

You save more if you choose the right home loan package.
Talk to a qualified mortgage broker in Singapore today!

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Sibor vs SOR Home loan

Sibor vs SOR Home Loan

Singapore Inter-bank Offered Rate (SIBOR)

Sibor is the rate at which banks lend to one another in SGD. When it falls, so does the mortgage rate of Sibor-linked Mortgages. Sibor is fixed based on the funds’ supply and demand. It symbolizes the unsecured/flexible funds that the financial institutions and banks lend to each other.

Singapore Swap Offer Rate (SOR)

SOR represents the cost of borrowing SGD synthetically through borrowing USD and swap out in return for SGD for the same tenor.

Advantages and Disadvantages of SIBOR and SOR

It is important to understand about Sibor and SOR because the interest rates of the local housing loans trail movements in this rate.

When it comes to stability, SIBOR has an edge compared to SOR. The latter is influenced by Forex trade which is already unstable due to the unpredictable world market and exchange rates. Regardless of the alteration in the market conditions, the SIBOR rates would remain secure. Although it has higher rates at times, it will not have rapid increase in rates due to economic fluctuations unlike that of SOR rates.

To conduct your business dealings safely it is wise to invest on a real estate attached to SOR provided that the lock-in period is short. But if the lock-in period is for an extensive period of time, SIBOR will be a better choice.

The simple reason for this choice is the fact that the growth forecast as well as the local economic condition is affected by the prevailing international economic crisis. Nonetheless, for someone who has a positive forecast of the future market, pegging to SOR rates will be worth the risk.

Talk to a Singapore mortgage broker today for your home loan needs.

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Additional Mortgage Documents

Additional documents for Home Loan application

At times, the banks may require some additional document if your case is rejected. The reason may be due to high leveraging (multiple loans), income not sufficient to support or high liabilities with many banks. Therefore, you might need to support the banks with the following documents in order to get your home loan approved.

Tenancy Agreement

Tenancy agreement with at least 6 months rental income – this is an additional source of income which will help to improve your Debt Servicing Ratio (DSR)

Debt Serving Ratio (DSR) is the calculation method used by banks to determine how much loan is available for individuals. Factors like income, liability, age will affect the DSR calculation.

Bank Statement

Balance in savings account – this prove to the banks that you are liquidity. Usually the bank need customers to have balance up to 24 months of their total installment.

Example:  If you have a car loan of monthly installment of $800 and you are taking a home loan of monthly installment of $2000. Thus, the bank will need you to prove balance of ($800 + $2000) x 24 months = $67,200 in your savings.

Shares statement

Shares statement prove to the banks that you have strong assets. Usually the banks will factor in 70% of the current valuation of share price as a consideration of their calculation.

Overseas income or overseas bank balance

If you have income or strong balance in overseas bank. It is good to furnish the banks with the balance as it help in the DSR calculation. Since the income is in overseas and the bank will need to factor in the exchange rate risk. Generally, the credit department will only consider 70% of the balance.