Useful Tips on Housing Loan

1) There are many housing loan packages offered by banks. How do I know which is best for me?

There’s no simple answer because much would depend on a person’s financial situation. However, you may want to consider these pointers when you shop for a housing loan:

Loan duration: Check the maximum loan duration or term that you can get. Some banks also set a maximum age limit, which would limit the loan duration. However, you shouldn’t decide on the maximum duration without careful thinking. The longer the duration, the more interest charges you’d be paying!

Monthly instalment: Ask the banks to show the instalment amounts using different interest rates, including interest rates that are higher than those quoted in the loan packages. This lets you assess whether you’d be comfortable if interest rates were to fluctuate.

Interest rates: Typically, banks offer fixed interest rates for the first 2 -3 years of a loan, with variable interest rates for the remaining years. If you prefer to be certain about your monthly instalment amount, then look for packages which offer a longer fixed rate period. See if the bank is able to provide you with the average interest rate figure over the entire loan period.

Initial lock-in period: Some banks impose a penalty if customers leave in the initial years of the loan. This refers to the customer paying off the old loan, perhaps by refinancing using a new loan with another bank. The penalty could be about 0.5 to 1.5 per cent of the existing loan amount.

Fees: See if the banks charge a loan processing fee, pre-payment fee, or third-party fee such as legal fee, valuation fee and fire insurance premium.

2) What is refinancing, and why do people refinance their housing loans?

Refinancing: It means getting a new housing loan to pay off the current loan. This is usually done because people believe they’d pay less interest on the new loan. A lower interest rate will decrease your monthly instalment. But you may have to stay with the new loan for some time before the lower payments will offset the costs of refinancing. I

Why Refinance: f you’re thinking of refinancing, ask the bank to show you why their loan package is better than your existing loan. You should also check on any lock-in period that might come with refinancing, the legal fees, and other refinancing costs. If you have a HDB concessionary loan and are thinking about refinancing to get a market-rate loan with a bank, do remember that banks may or may not be as flexible as the HDB in not repossessing properties when loans default