Debunking bank home loan myths
Home investment is one of the biggest investments you can make, and it needs careful consideration. Typically, most people prefer buying a house only if they have the financial bandwidth for it. In simple terms, those who have sufficient savings left even after buying a house are the ones who prefer home investment. But, then what about home loans that many people take benefit of? Home loans or loans of any kind are debts that everyone steers away from. Whatever the type of loan, people usually use it as the last option for financing their needs. After all, what if you are unable to repay them? Plus, the complex jargons and procedures to obtain a home loan deter people from taking one.
Singapore has a huge rate of home ownership, i.e., 90%. In spite of this figure, there are issues surrounding home ownership, especially taking a home loan. Several fears surrounding home loans confuse and deter people from buying their own sweet home. These concerns are nothing but common home loan myths. Today, we take you through some common home loan myths that shouldn’t be believed.
The myth about getting home loans with low interest rates
Low interest rates are appealing to all. A common myth surrounding home loans is securing a loan with the lowest interest rate. But, what about those people who pay high interest rates? Did they do the wrong thing? No. Most borrowers think that securing a low interest rate loan will help them save money that otherwise would have been spent on interest payments. But, the interest rate is not the only thing to be considered when thinking of taking a home loan. You also need to consider aspects like the lock-in period, fixed or floating rates, pre-payment conditions, and more. Depending on these factors, your monthly repayments may vary, and you may even have to incur more cost. Choose a loan that allows you to comfortably repay it.
Two people are better than one when obtaining a home loan
Many Singaporeans end up applying for a home loan as joint applicants for a variety of reasons. Some feel that residential properties are quite expensive, while others want to facilitate a sense of equality in their relationship. But, when one person’s income is enough to qualify for a home loan, then it makes no sense to use two names for a single loan. Using a single name can benefit you when you plan on buying a second home. Banks typically lend up to 80% of your home valuation on the first loan and 60% on the second. If you do not apply as joint applicants for the first loan, you can acquire a larger share for the second loan as well. Hence, two borrowers may not always be a great option.
HDB mortgage interest rate is always at 2.6%
When buying an HDB (housing and development board) home, Singaporeans often prefer the HDB concessionary loan because of its 2.6% interest rate that has been consistent for an extended period of time. But, as the saying goes, change is the only constant. This applies to HDB loans too. HDB interest rates are derived based on the prevailing CPF ordinary account interest rate and a margin of 0.1%. So, if the CPF ordinary account interest rates rise due to some change in market conditions, then the HDB loan interest rates will also increase. Being prepared for any change is vital when obtaining a home loan.
Shorter tenure will help avoid high interest
Who doesn’t want to pay off their debts early? Everyone wants to get rid of their debts as soon as they can. Plus, they don’t want to incur high interest. This is the reason behind people preferring shorter tenure home loans. Given a choice, people would prefer shorter loan tenure so that they pay less interest and get rid of the commitment faster. But, in the long run, this may not be beneficial. When you take loan for a shorter period, you may save interest, but you will increase the burden on your monthly installments. If you are a high-income earner, then this may not be an issue. But, for average-income earners shelling even an extra $1000 each month may be difficult. Analyse your financial situation before banking upon short loan tenure.
Pay off the mortgage as quickly as you can
Most people prefer repaying their loan as early as they can. Say, for example, the loan is of 3 years. Then they wouldn’t mind repaying it before the three year tenure. They think that repaying debts quickly will help them increase their savings. Of course, you may no longer have to pay those installments. But, to repay it early, you have to shell out more money and reduce the amount you save. Hence, when it comes to home loans repaying early does not equal savings. Plus, many banks charge penalties for those who either pay a portion or entire loan before its maturity. It is better to invest the extra cash and pay the loan as per the set tenure. If done right, investing can also allow you to reap returns of 5% to 10%.
Buying a home is a once in a lifetime investment for most people. Hence, financial considerations are vital. However, being aware of these common home loan myths helps you make an informed choice. Now, that you know them, you are well equipped to make a home buying decision and need not rely on assumptions.
The best lender to get a loan is 1st LG Credit Pte Ltd. 1st LG Credit is offering various type of loan including bridging loan, business loan, domestic maid loan personal loan and so on. Flexible repayment and lowest interest are the main causes we are outstanding from others.
Find us at, 304 Orchard Road #02-29 Lucky Plaza Singapore 238863. Or call us at +65 6299 6654 . Previously we name as Lekshmi Moneylender after that rebrand as 1st LG Credit Pte Ltd.