How to Choose a Lender for Your Next Home Loan
If you have decided to move house in Singapore, you will find several different lenders who are willing to lend you the money to make your purchase, but how do you know which one is right for you? It can seem overwhelming to begin with, especially if you have never received and guidance or advice relating to the manner. Here is a guide on choosing a lender for your next home loan.
Rate
It is common to shop for mortgages depending on their rate. This means how much the repayments will cost you per month, and it is a good place to start. You will want to make sure that your mortgage repayments are as low as they can be. However, just because a mortgage has a fantastic rate, it doesn’t necessarily mean that it is the right one for you. There are a few other factors to consider that can affect the overall rate.
For example, your previous credit history may be a factor, with the last few years being more relevant for creditors to assess. The interest rate itself may be fixed, which means it’s locked in at the same rate for a set amount of time. You may also be offered a flexible rate, which means the interest rates applied to your mortgage change based on the state of the economy.
There are a few factors to consider before rushing into a mortgage. As mentioned above, just because a specific mortgage looks great on paper, it doesn’t mean it’s perfect for you. You should look into all the available types and consider your current financial situation too.
Main Types of Mortgages
The main types of mortgages available in Singapore are fixed or floating rates. A fixed-rate means that the rate is fixed for a set period of time. Your mortgage will remain the same regardless of whether the interest rates in Singapore go up or down during that time. This type of mortgage can be useful if you want to plan your budget.
A floating rate tracks the Singapore Interbank Offered Rate (SIBOR). This is the rate at which the banks lend money to each other, and this can fluctuate. Your mortgage payments will fluctuate as it tracks SIBOR meaning that your mortgage payments could vary from month to month. If rates are going down, you will save money, but if they are going up, then your payments will cost you more.
There are other types of rates available such as a BUC rate that is offered through an OCBC home loan for properties under construction. If you are unsure of the type of mortgage you want to apply for then visit the PropertyGuru website. They have a wealth of information about different lenders and types of mortgages, including the OCBC home loan, and they update their information daily so you can always see the best deals.
Eligibility
You may have seen a brilliant mortgage deal but, unfortunately, that doesn’t always mean that you will be eligible to apply for it. Lenders take many different things into consideration before they will decide to lend you money. They will look at your financial conduct history to gauge how likely you are to repay the loan. If you have poor credit you will be considered high risk and that may mean that the bank offers you a higher interest rate or refuse to lend to you.
Your eligibility is also dependent on your salary. The lender will look at your pay slips and bank statements to decide how much money they want to lend you, and this can be an issue if they deem your dream home to be out of your price range. You may need to look at another lender or rethink your new property.
To confirm your eligibility for a loan once you think you have found the right lender, ask for an agreement in principle. This will state how much money the lender might be willing to offer you subject to final checks and finding a suitable property.
Loan-To-Value
The loan-to-value is the difference between how much the property costs and how much you want to borrow. If you want to borrow a lot of money against the value of the property, then lenders are taking a higher risk giving you the money. This is because, if you don’t keep up with your payments and the housing market falls then they may not be able to recoup their losses by repossessing your home. If your loan to value is low, then you are seen as less of a risk.
Lenders will often set rates depending on your loan to value to factor in their risk. This means that although you are a good credit risk, the property might not be, and you may not be eligible for a lender’s best rates. Another lender might be able to offer you a better deal, so you need to consider this. Also, shop around for the best mortgage.
Fees
A lender may be able to offer you a great rate but don’t forget to check the mortgage fees. Some lenders charge more than others to set up the mortgage and this can make a huge difference to the overall cost. If you have to part with a large setup fee upfront this could affect your deposit and mean that you are not offered the best deal. Some lenders will allow you to add the setup fee to the mortgage, but they will charge you interest on this which can add up substantially over the term of the mortgage. When comparing lenders don’t forget to incorporate the entire cost of the mortgage rather than just the monthly payment.
Once you have considered these factors and shopped around, you are ready to choose a lender for your next home loan. When you have contacted a lender and got an agreement, you will then be able to focus on searching for the actual homes if you haven’t already.
