Your monthly repayment for your housing loan comprises of the principal repayment and the interest payment.
Factors affecting how much you pay are:
- The size of your loan
- The tenure (number of years)
- Interest rate
- Type of loan (fixed or variable interest)
A longer tenure will mean lower monthly repayments but higher total interest paid.
You may wish to note that your CPF has a Withdrawal Limit of up to 120%. You may need to pay by cash if your total withdrawal exceeds this limit.
Types of Loans
- Fixed Rate: In an environment of rising interest rates, this package is more attractive. Usually the interest rate is fixed for a few years before it reverts to a floating rate
- Variable Rate: These packages are tied to a reference interest rate such as the SIBOR or SOR.
Some Points to Note
This is the number of years where the borrower cannot make changes to their loan package in order to enjoy a promotional rate. He cannot switch to another bank during this period ranges from 1-5 years. During this period, there will be a penalty of typically 1.5% of the loan redeemed should the property be redeemed in full. A fixed rate package usually comes with a lock-in period where you secure the promotional interest rate. This is beneficial to the borrower in an environment of rising interest rates. However, with a floating rate package, a lock-in period may not be beneficial, especially when interest rates rise too fast and you are unable to switch your loan package. If you are intending to sell your property, it is advisable not to take up loans with the lock-in period.
Some banks impose a penalty should you wish to redeem your loan partially or in full in order to save on interest paid. This penalty usually corresponds with the lock-in period and incurs a 1.5% on the amount redeemed. Some banks allow partial payment without penalty whatsoever for up to 20% of the loan, and others have a minimum loan amount after early repayment. It is advisable to check the terms of your loan package before taking it up if you need this flexibility.
Repricing means taking up a new loan package with the same bank after your current package has expired. The bank may charge you a fee of between $200-$800 for taking up a new loan with them. You can choose to refinance with another bank in order to avoid these fees as they often cover the costs involved and subsidize any legal fees.
This fee is imposed when the loan is cancelled before disbursement. The 1.5% is more applicable to Building Under Construction (BUC) properties under the progressive payment scheme where the bank disburses the loan in stages according to the completion of construction stages. If the borrower switches to another bank before the TOP, he will be subject to the cancellation fee on the amount that is yet to be disbursed.
Reserve fund for fluctuations in interest rates, loss of income, emergencies etc
We strongly encourage our clients to exercise prudence when purchasing a home. Being late for the mortgage repayments has consequences that may result in you losing your home. If you are facing difficulties in repaying your loan on time, do approach your bank immediately to discuss how you can restructure your loan.
We urge borrowers to have a reserve fund of ideally 6 months’ total expenses for bad times where there is retrenchment, illness or changes in life circumstances.
Other miscellaneous expenses
Other miscellaneous expenses include things like property tax, maintenance/conservancy charges, fire and mortgage insurance, and renovation and repairs.
In Singapore, property tax on completed properties (as opposed to Building Under Completion), comes around once a year on 31 Jan. The amount you have to pay depends on the Annual Value of your home, and whether it is owner-occupied or not. To read more about property tax, click HERE.
HDB properties will be subject to conservancy charges and carpark charges. Condominiums charge a maintenance fee that depends on the Share Value that your unit commands. This amount varies from development to development. Some projects charge a separate carpark fee. There may also be a sinking fund collected after 5 years which goes towards the repair of the common property. For landed property, you are liable for your own upkeep.
If you are getting a resale property, you may have to factor in a substantial amount of renovation cost depending on the condition of the unit. A property from the developer is brand new and will require less extensive renovation, plus there is a defects-free period of one year where any repairs will be handled by the developer.
All these miscellaneous expenses will have to be factored in even though they are minor costs when you consider how much you can spend on your property.
If you are considering buying a property but are unsure of what you can afford, do contact our friendly consultants at Property Science for a no-obligations discussion on your needs and what is currently available in the market.
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