Mortgage Packages and Features
There are many kinds of mortgage packages available in the market. This document highlights the different type of packages and features that banks offer in Singapore currently. Some mortgage package can also have a combination of the features highlighted here.
Capital and Interest Mortgage
This is the standard mortgage package. Monthly payments are made towards paying both the interest and the principal. Each monthly payment is equal, so in the early years of the loan term, larger part of the monthly payments is towards interest payments. And then the principal payment part gradually grows larger over the loan term. At the end of the loan term the debt has been fully repaid.
Cash Back Mortgage
In a cash back loan, the lender gives portion of the loan back to the borrower in cash. In this kind of arrangement, the borrower is typically tied to the loan for a certain lock-in period.
Combo/Hybrid Mortgage
A combo mortgage allows you to divide you total mortgage loan into separate parts and apply a different loan package to each of them. It could, for example, be two part loan with one part on fixed-rate package and another part on a floating rate package.
Interest-offset Mortgage
Recently most banks have started offering interest-offset packages where you can get same interest rate on part of your deposits and you pay for your mortgage loan. Typically the ratio is 2/3 of your deposit, so it doesn’t fully offset your mortgage interests. The remaining of the deposits will have a lower rate. This is to attract people who have a lot of cash sitting in bank with current very low deposit rates.
For example, your loan is $500k @ 3% interest. And you have $300k in bank - let’s say at deposit rate of 1%.
Your loan interest is $15k / annum. You can get 2/3 of you deposit at 3% and 1/3 at 1%. Your deposit interest is therefore $200k x 3% + $100k x 1% = $7000 / annum. Once you offset the interests, you only pay $8k / annum for the mortgage interest.
Interest-only Mortgage
As the name implies, there are no principal payments during a part or the whole loan term and the loan balance remains unchanged during that period. The monthly payments are only to pay for the interest. The full loan principal is then paid at the end of the loan period - or typically the loan is just refinanced.
Fixed Rate Mortgage
For somebody who wants to be sure exactly how much the monthly payment will be and not worry about interest rate changes, there are fixed rate home loans packages available. Fixed rate packages offer a fixed interest rate for a certain period, after which it becomes a floating rate loan. Fixed rate loans also typically come with a lock-in period and early repayment penalties.
Fixed rate packages in Singapore are only offered up to 3 years, so the kind of 20 or 30-year fixed rates packages offered in many other countries are not available here.
Payment Holiday Mortgages
This is more of a loan feature than a loan type itself, but many loan packages offer a possibility to take a break from monthly payments sometime during the loan term. This can be, for example, 1 or 2 monthly payments every year.
Variable Rate Mortgage
In a variable rate housing loan the interest rate can change during the loan term. The interest rate is calculated based on a reference rate and a margin. The reference interest rate is either bank’s internal lending rate or SIBOR. If the reference rate is SIBOR, the loan interest rate is adjusted every 3 or 12 months (depending which SIBOR the loan is tied to). If the loan is tied to bank’s internal rate, the bank usually gives at least one month notice to borrower. Variable rate packages can typically be repaid early, except in cases where the margin is lower for a given lock-in period.
