There are numerous forms of housing loan packages available in the market. When you make housing loan comparison, it is imperative that a fair comparison is made. Being negligent to this can result in comparing mortgages that does not make sense. Sort of like comparing an apple to an orange.
For example, it cannot be realistic comparing a 15 year mortgage to a 30 year mortgage. It also does not make sense to compare housing loans with fixed interest rate to those with floating interest rates. Make comparison between different mortgage lenders with near similar structure on lock-in period and interest rates. This can also vary especially if the mortgage lender is one that is willing to be flexible on their housing loan packages. You might even get into a situation where you have to choose between favorable prepayment penalties and favorable interest rates and vice-versa.
Adding up the total fees and charges at closing will give you a good picture of which offers are the most attractive on signing up. There can be a varying number of charges and fees carrying different labels. Mortgage lenders may treat these fees differently. One may give subsidies but charge higher processing fees. Another may waive processing fees provided you take up their in-house home insurance package. So it is best that you figure out these details on closing costs before making your choice on an offer. Add up all the fees involved to make a fair and proper housing loan comparison.
Note that lower interest rates will not necessarily mean a better deal for you. Look carefully into the terms of the deal. It can be low rate for only an initial first year of the loan, and much higher rates after that. Remember to question the details of closing costs before giving your commitment to accept a housing loan offer from a lender.
When you are fully aware that you are going to switch mortgage lenders after the lock-in period, you should take greater care in your offer selection. This is because the redemption penalty will be of meticulous concern to you. However, if you are willing to pay higher interest rates and obtain favorable penalty terms, tell your mortgage lender. You wouldn’t know how flexible they can be if you don’t ask.
For example, when you are looking at housing loan offers with a floating rate in Singapore, it is most commonly bench-marked to the publicly available Singapore Interbank Offered Rate (SIBOR) or Swap Offered Rate (SOR). A margin is added on top of the available rates, and that becomes your interest rate.
Generally, SIBOR is more stable while the SOR is more volatile in fluctuation. So an individual with an appetite for calculated risk may choose a housing loan bench-marked to the SOR when it is low. Do ask questions on current outlooks when deciding offers between these 2 benchmark rates. Because rates can change daily, the lenders are in the best position to provide you timely information on interest rates.
The most widespread deciding factor that influences an individual on a housing loan decision is the loan-to-value ( LTV ). The LTV is the amount that a mortgage lender is willing to offer the borrower for the housing loan. The common practice is to finance an amount based on the market valuation or purchase price of the property in question, whichever is lower. It simply means that a house has a current market valuation of $ 400,000 and you bought it for $500,000, the mortgage lender will only be comfortable to finance a portion of the valuation price at the lower value of the 2 – $400,000.
Don’t assume that a lender will finance 80% of a property purchase just because you heard of it from a friend. Be careful on this and check with a lender on how much they are willing to finance. This is because different properties in different categories can be treated differently by a lender. They may be willing to finance 80% of properties in category A while only 60% of properties deemed to be in category B. Whereas, a different lender may have an internal policy that is the other way around.
Different mortgage lenders can have differing lending policies. Factors like proposed redevelopment, location, etc, can be determining factors. So be careful when comparing housing loans. Decisions from one lender does not necessarily serve as a reflection of the whole market.