HDB fixed rate home loan for refinancing

How To Select Home Loan – Personal Considerations

Personal Considerations

The next step in the 5-step process (below) is to look at some personal considerations when choosing the bank.

  1. Interest Rate
  2. Loan Restrictions (eg. lock-in period, prepayment penalty etc.)
  3. Special Features (eg. interest offset account, switching between sibor periods etc)?
  4. Personal Considerations
  5. Tenure and Loan-to-Value (LTV)

What are some typical personal considerations which may influence your choice of bank?  We identify four more common areas:

(a)  Relationship With The Bank

Maybe you are a private banking customer of the bank and your bank has a mortgage arm and they could offer you an attractive rate as part of your total banking relationship.  You will also have the dedicated service of your private banker who provides “under one roof” service for all your banking and investment needs.  Still, we do encourage you to keep abreast of market rates so as to ensure you are always getting the best deal.  After all private bankers do represent their bank and are known to peddle products and services in order to meet their sales target.

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Maybe you are a businessman and you do have extensive banking relationship with one bank in terms of your credit facilities and you are asked to support the bank in return.  To be honest we do not know how this exactly works.  We know local banks command the lion’s share of the mortgage business in Singapore and we also notice how over time some banks may offer better terms to new customers than existing ones.  That is a common grouse I hear from our clients and this is also why here at MortgageWise we deliver the most value in terms of comparing loans and ensuring our clients always get the best deal out there for mortgage loans, be it their current bank or another.

(b)  Your Credit Standing

Perhaps for some reasons you have not been paying your last few instalments on time.  Incidentally that is a very serious “red flag” for most banks and will surely hit your credit assessment.  Do ensure you have a near perfect payment history going by your latest CBS (Credit Bureau Singapore) report which you can pay a small fee ($6.42) to request for one directly with them here.

There will be a credit score at the end of the report with a risk grading going by type AA, BB, CC to HH.  Banks would love to see AA risk grade (score of 1911-2000) which basically means payments on all debts were current with no late payment history and no cash advance withdrawal in the past 12 months, and a probability of a default at less than 0.27%.  Contrast that with the worst possible credit score of 1000-1723 and a risk grade of HH with a probability of default at more than 3.48%.  For such cases, it is almost guaranteed that no banks in Singapore will approve any sort of loan application and such a person is better off making efforts to first improve his credit or payment history in the next 1 year before re-applying for mortgage loans.

If your credit profile is not very strong or is borderline case (eg. a CC grade), try not to apply to too many banks in a short time as each application shows up in the CBS report which will not give a good impression.  Pick the right bank to apply to with the help of a good mortgage broker and just be prepared the bank may ask you to show proof of funds.

(c)   Mortgage Planning

MAS announced new LTV (loan-to-value) limits for new property purchases on 12 Jan 2013 last year as part of property cooling measures where ABSD (additional buyer’s stamp duty) were also raised for locals and foreigners alike.

This will now be factored in as part of mortgage planning when you speak to a good mortgage broker who is well-versed with the latest regulations.  What it means for most people is to look at future plans for property sale and purchases carefully and wherever possible try to be “nimble” and put yourself in the best position to buy when the market crash again.  For many couples who are used to holding property assets in joint-tenancy in two names, increasingly we notice a trend where they might choose to “decouple” either on the title or mortgage or both when they refinance.

“Decoupling” on the title of the property by way of either a gift or a part-sale from one owner to another is a topic in itself and will not be covered here.  Suffice to say stamp duties are payable and owners will need to do precise calculations to see if doing so will indeed save them money in terms of stamp duties and ABSD.  Decoupling on the mortgage is easier to execute.  This is frequently referred to as “2M and 1B” in the industry, ie. two mortgagor but 1 borrower.  The mortgagor or owner whose name is not listed as a borrower in the loan will need to sign a consent letter to the bank.  A couple with only one property in Singapore and who does a “decoupling” on mortgage when they refinance (provided the remaining owner say the husband is able to fulfil TSDR requirements on his own) effectively “frees up” one owner or the wife to get maximum loan for a 2nd property as this will be then be her first mortgage (up to 80% LTV) subject to TDSR.

However note not all banks will accept this.  Some will require all mortgagors to be borrowers in the loan.  Again a good and experienced mortgage broker will be able to advise you which bank to go to.

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(d)  Your Future Income

Lastly you might need to consider the stability of your future income when choosing your home loan.

For those with a solid corporate career path where employment income is stable for the foreseeable future you have less concerns on refinancing and you could simply choose the bank with lowest average interest rate in the first 3 years and always refinance to the next best package after that.

However for those making mid-life career change, or those with highly variable income source eg.commission-based agents, it will be more important to look at the longer term rate beyond just the promotional rate in the first 3 years of the loan.  This is because after 3 years you may not be able to refinance with ease should interest rate shoot up and you are stuck with a higher interest spread of 1.25% or maybe even 1.5% and that is where the bank earns back from you higher margins.

At MortgageWise, we have advised some of our lucky customers who have been given incredibly “superb” spreads from banks of only 0.75% for “infinity” or the entire tenure of the loan 5 years ago not to refinance.  Even if this spread goes up to 1% after 3 years we have also asked them to stay put with their existing banks instead of refinancing now for their own good.  We get no business that way but it is the right thing to do as we seek to advise our clients by putting their interests first.  The moment they refinance to a new loan yes they may get slightly lower promotional rates again for the first 3 years, but their long term spread goes up to 1.25% after that and they would be shortchanging themselves in the long run.

Consider using the free service of an experienced, knowledgeable & professional mortgage broker, like us here at MortgageWise, who not only help to plan with you on your new purchase, but become your mortgage partner in refinancing solutions over the entire term of your loan, giving you timely reminders and advice on the best home loan from time to time.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

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About Darren Goh

Darren Goh is the Executive Director of MortgageWise.sg, a thought leader in the Singapore mortgage industry, with frequent interviews and quotes by the press - Business Times, Straits Times, Zaobao and EdgeProperty for his views on the latest mortgage trends. He is an avid property investor with successful careers in banking & real estate before becoming an entrepreneur.
View all posts by Darren Goh

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