If you are looking to purchase or invest in property, you may find the perfect property but discover that it is out of your price range. In these cases, taking up a mortgage is a great path to home or property ownership. However, there is a lot to consider before you sign for a loan. Here are some key considerations to think about before taking the loan.
Eligibility
Before a bank approves your home loan, you have to be eligible for the mortgage you are seeking. Although different banks have different eligibility criteria, most of them will look at your income, age and credit score. Some banks may do additional background checks to get a better idea of your financial standing. This is often done to ensure that you can repay the loan.
Some banks also look at the ratio of your dents to your income. In many cases, banks see borrowers who have debt obligations of over a certain percentage as greater liabilities, usually 50-60%, and will not lend to them. When they do, they offer a much higher interest rate.
When applying for a mortgage, you need to be honest with yourself and decide if you are eligible for the loan. If not, you can start putting measures in place to make more money, improve your credit score or sort out anything else that might make you ineligible.
Fixed Vs. Floating Rates
One of the most important things to check when applying for a mortgage is the interest rate; more specifically, you should check whether a lender is offering a fixed or floating interest rate.
Fixed rate loans have an interest rate that does not change throughout the loan’s term. On the other hand, floating rates can change during the loan’s term. Floating rates are usually dependent on a benchmark rate and when this rate changes, the interest rate for a floating rate loan will change.
Picking a fixed rate mortgage means that you have a better understanding of your monthly financial obligations as well as what you need to pay each month. This option is great for those who use the mortgage to invest in a property that they then rent out.
Floating rate loans usually have low interest rates at the start and these rates can increase during the loan’s term. Because of these changes, these loans can be a lot more expensive than fixed rate loans over the same period.
If you are applying for a mortgage, you need to know whether the loan you are looking at offers a fixed or floating interest rate. There are loan comparison sites for those looking to purchase property in Singapore that will let you know the type of rate a loan offers. You can compare loans for private property and different HDB loan options on sites like PropertyGuru Online. In addition to loan comparisons, PropertyGuru also has guides on the best places to live, new projects, and curated property collections. It is a great option whether you are looking to buy, rent or invest in property in Singapore.
Loan Conditions
Every home loan has conditions attached to it and borrowers should know what these conditions are when taking a mortgage. These conditions can outline how the loan is to be repaid, the fees attached to making changes to the mortgage, refinancing options and more. The reason why borrowers should pay close attention to these conditions is that they can undercut any cost savings that come with repaying mortgages early or even increasing their repayment amounts.
One area that a lot of people do not pay attention to is lock-in periods. If you choose to refinance the loan before this period has elapsed, you will likely have to incur additional prepayment expenses and penalties. Taking a loan without a lock-in period is always a better option when you think prevailing conditions will change within that period and these changes may force you to refinance the loan.
Availability of Mortgage Insurance
If you are repaying the mortgage on your own and have kids and a partner living with you, you should consider getting mortgage insurance. Although it is not mandatory to do so, it is advisable that you take it. Why? Mortgage insurance can help pay for any outstanding loan amount if you are ever unable to service the loan. This can be for various reasons such as loss of employment due to injury or disease, death of the primary borrower, and many others. In these cases, the home can get repossessed. Mortgage insurance gives you peace of mind in knowing that you and your family will have somewhere to live should there be any interference in the ability to repay the mortgage.
Owning a home or a property is a massive financial decision and a great investment. A great path to home or property ownership is through mortgages. However, before you sign for the loan, ensure you understand everything about it to make sure you are getting the right mortgage for you and your family.
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