Mortgage Basics

Definition of Mortgage

Most property transactions are partially financed by a loan. Home loan, or mortgage is defined as:

Aloan in which the borrower puts up the title to real estate as security(collateral) for a loan. If the borrower doesn't pay back the debt ontime, the lender can foreclose on the real estate and have it sold topay off the loan.

This is simply means that you are securingthe loan against your home. Failure to make repayments on the loancould therefore result in you losing your home. In order to avoid thisyou should ensure that you can comfortably afford the repayments on theloan before you make any commitment.

Basic components of mortgage

• Loan amount - this is the amount that you wish to loan. It can be typically up to 80 or 90% of the property purchase value.
• Interest rate - this is how much interest you will have to pay every annually to the lender for the loan. Interest rate can be fixed rate, flexible rate, or combination of both over the duration of the loan.
• Loan term - this is the duration over the loan is planned to be repaid. Typically this can be up to 30 years.

Thehome loan is typically repaid to the lender monthly. The repayment iscombination of principal repayment and interest payment. Using thesethree parameters, you can calculate your monthly mortgage payment.

Use our mortgage calculator to calculate your monthly payments

Uses of Mortgage

Peopletypically take mortgages to buy a new property or to refinance theirexisting property. The property can also be for investment or for ownuse (called principal residence).

Refinancing typically happensbecause most banks offer initial discount rates which turn higher afterthe initial lock-in period expires. People then refinance to get thelower rates again. Refinancing also allows in some cases to increasethe loan amount to keep as little as possible money tied to theproperty. For example, currently the loan rates are lower thaninflation rates in Singapore, so having more loan is actuallybeneficial to the borrower. Mortgage is also usually the cheapestfinancing available for people (e.g. compared to personal loans).