signing on mortgage letter of offer

8 Questions To Ask Before You Sign A Mortgage

At MortgageWise, we pride ourselves in always growing our knowledge and constantly adding value to our clients over time.  I hope in this article you will walk away learning something new that you have not come across or heard from anyone, thereby reaffirming why so many clients have chosen to work with us as they realize it actually pays to go through a trusted mortgage intermediary for their home loans.  And this trust is not something we take lightly.  See our testimonials.

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Here’s the 8 questions you need to ask before signing on that dotted line (for mortgages):

1. How Do I Get The Maximum Loan?

Most homeowners are now familiar with TDSR (Total Debt Servicing Ratio) requirements in Singapore and the chunk of documents and credit card statements needed for submission when applying for a mortgage.  Still it is good reminder that if you like bigger loan, you need to keep your TDSR as low as possible especially just before you put in the application to the bank.  So start planning early.

Keeping things simple here at MortgageWise, just remember – to lower your TDSR ratio (monthly debt/monthly income) you either lower the numerator or increase the denominator.  For most employees, income is not something controllable, so work on the rest like 3 simple tips here:

  • Pay off all outstanding credit card debts or keep spending down in last 2 months prior to application (better yet use cash)
  • Keep all payslips diligently up to last 12 consecutive months as you may need to make use of your most recent bonus payout (which may not be captured yet in your latest tax returns)
  • Liquidate some investments before application especially if you make profits and standby the liquid assets to be presented as “additional income” (not pledging)

2. How Should I Structure My Mortgage For Purchase?

Do you put down both owners as borrowers or just one with the other simply as a mortgagor?  Should you take the maximum loan or use your CPF funds to pay down as much as possible?  We recommend taking a floating rate mortgage on the portion of the loan that matches with the amount of funds available in your CPF.  Find out why so from our consultants.

And for those with existing properties, you could save big in stamp duties by doing a de-coupling first just before your purchase.  How do you go about that swiftly without missing out on that dream home you have just stumbled on by chance?  Speak to our consultants to find out more as there is just too much to cover here.

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3. Go Direct To Bank Or Work With A Broker?

Most people think that going through a broker or a third party distributor like us means they will not get the best deal as the lender will need to build in additional distribution costs in order to pay us.  However they forgot that the bank still pay “distribution costs” to their internal salesforce, the mortgage specialists, who are partially remunerated based on the amount of loans they bring in.  In essence it is a question of allocation between internal and external distribution channels, and we have argued for longest time in this blog that external distributors bring the most efficiency and effectiveness to lenders which some have yet to see.

Should you apply through an external distributor?  The only way to find out if to try as you have nothing to lose.  Don’t take our word for it.  Verify with the banks directly the rates presented if you like.  One caveat is make sure you work with the right intermediary, one that can be trusted to present “whole of market” packages as claimed, and let you know when banks are not paying them for certain packages.

In fact when you choose to take your loan through MortgageWise, not only do we just present the “whole of market” packages and make sure you have the most comprehensive and updated rates on hand, you actually access our entire suite of complementary benefits from working with the best bankers, special deals with lenders from time to time, and exclusive & one of lowest legal fees for refinancing and BUC purchases from our partner law firm.  It’s an under-one-roof service.  Not to mention we have gift vouchers to add to the excitement for our valued clients.  Speak to our consultants before you buy that condo Singapore.

 

4. Should I Go For Fixed Or Floating Rate Mortgage?

This is the most common question asked by almost every client.  And it is here that we add the most value.  We used to say the rule of thumb is when the differential between fixed and floating rate is not more than 30-40 basis points, you can opt to pay a little bit more premium and just go fixed for that peace of mind.  However does that still hold true in a new expansionary economic regime under the Trump administration where the pace of rate hikes is expected to quicken?

Obviously the answer to this question will depend on one’s outlook on interest rate.  We offer unique views and analysis based on our comprehensive scanning of events and news in both local and global financial markets that have impact on interest rate movements.  This is another reason why it is beneficial to acquire relationship with a trusted and well-informed mortgage planner, as we monitor the market on your behalf.  Back to the question of fixed versus floating, perhaps the best way to answer that is through an interest rate modelling using our proprietary MortgageWise Interest Simulator, which shows you how much interests you could potentially save based on various scenarios.  Then you make the final decision. Another value-add from us.  Just ask our consultants for it.

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5. How Early Should I Start Shopping For Best Rates?

Unknown to most, in an interest upswing cycle, it pays to start the process of shopping for rates earlier than normal.  And you can actually begin that process much earlier than the 3 months’ notice period required by most mortgage contracts.  Speak to our consultants early to identify which is the best point in time to start.

6. Repricing Or Refinancing – Does It Pay To Compare?

One pet peeve lenders have with mortgage intermediaries is that they believe we take away business from them as much as we bring them new businesses.  However we have repeatedly made the case that it is not us, but the banks themselves, that cause clients to outflow.  We ask every client to first go negotiate for the best repricing offer with their existing bank who has every chance to retain him.  Still most have come to realize that it does not pay to stay with the same bank, as lenders change their priorities and strategies from time time.  Certain periods local banks win out in terms of having the best overall packages, other times one or two smaller foreign player may suddenly secure a tranche of funds at the lowest fixed rates from their Treasuries and offer that on a limited basis.  That is how a free market should work, ultimately for the benefit of consumers.  So stay open to all banks local or foreign, whoever is most hungry for your business.  Working with a reliable and trusted comparison site not only levels the playing field hence giving you broad overview of all packages in the market, it ensures you do not miss out on exclusive deals made available to select few from time to time.

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7. What Are Some Hidden Costs Involved In Refinancing?

The usual transaction costs you would already know – legal fees and valuation fees.  We have mentioned earlier how working with an established mortgage distributor saves you some legal fees as you enjoy volume discount pricing from our law firm partner.

Other costs might include cancellation fees, typically 0.75%, for undisbursed portion of loans for properties obtaining TOP as there is still a last 15% of loan which will only be disbursed on CSC (Certificate of Statutory Completion).  For some banks there may be a requirement for the loan to be redeemed on a specific date in the month eg. on rate-setting date of an Interest Period (3-month SIBOR) failing which a breakage fee may be levied.  Last but not least, some clients actually miss out on fulfilling lock-in periods where a penalty of 1.5% of the loan amount redeemed will be slapped if you refinance home loan out before the lock-in expiry date.  Likewise there may also be a legal subsidy clawback period of 3 years to fulfil if you have taken a legal subsidy from your current bank at the start of the loan.

8. Is There Anything Else I Need To Look Out For?

There may be one or two ways to help save on costs or avoid paying unnecessary higher interest for example how to expedite the serving of 3-month notice to the outgoing bank.  We have pretty much streamlined all our processes at MortgageWise in order to achieve the maximum savings for our clients, and to make the entire experience hassle-free from end to end.  The only “bottleneck” we cannot control is the approval time at the lender side but we have already assembled the best team of fast-moving bankers in our panel.

Finally a word of caution about lock-ins.  We often hear comments like “I don’t mind a lock-in of 2 years” from unsuspecting clients attracted by the super-low headline interest rate dangled by banks usually in the first year.  This is especially dangerous in times like now where interest cycle is turning and heading up.  Understand the implications of lock-ins and how that reduces your bargaining power when you negotiate for repricing offer later.

At MortgageWise.sg, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of home loan products for banks and financial institutions in Singapore.

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