What’s the best home loan to finance your property purchase? Some may say the mortgage package with the lowest interest rate. While it’s true that having a low interest rate mortgage loan often translates to a lower monthly instalment, it may not be the best home loan for you.
For those thinking of repricing or refinancing your home loan, there are various factors to consider when picking the best home loan. From considering home mortgage lending rates to considering housing loan maximum tenures, we’ll explain why you shouldn’t always go for a low interest rate mortgage loan.
How to Choose the Best Home Loan in 2024
| Mortgage tenure | Factor in your debt obligations, financial goals, and cash flow amounts. Take a shorter tenure if you have liquidity and prioritise paying less interest |
| Fixed vs floating rate mortgage home loan | Consider your risk appetite and reprice or refinance when you can |
| Lock-in period | If you want to reprice or refinance often and quickly to take advantage of interest rate fluctuations, you may want a shorter lock-in period |
| Exclusive discounts and cash rewards | Promotional home mortgage lending rates and accompanying perks can reduce the cost of repricing and refinancing |
| Mortgage advice and lender reputation | Check on customer service quality, turnaround time, and possible spread adjustment |
1. Mortgage Tenure
Your mortgage loan tenure affects your Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) (for those financing an HDB flat). You want to adjust your loan tenure when repricing or refinancing so the monthly repayments are manageable and you can meet your financial needs and goals.
For instance, if you intend to take on a second home loan to finance an investment property or have other debt obligations (i.e., you have a car loan to service), you can go for the maximum housing loan tenure. A longer loan tenure can allow you to meet the required thresholds and have better cash flow.
The shorter your loan tenure, the higher the monthly instalments. If you prioritise reducing total interest costs and have cash liquidity, then having a shorter loan tenure may make sense.
2. Fixed Vs Floating Rate Home Loan
If you do a mortgage loan comparison, you’ll see the lowest mortgage rates on the market are 2.85% for a fixed rate home loan and 3.85% for a floating rate home loan (based on the lowest interest rate offered in the first year, as at 27 June 2024). But that does not mean you should automatically fixed rate home loans.
Floating rate home loans are great for those who have some risk appetite and expect interest rates to trend downwards. While the US Fed will likely only cut rates once in 2024, it is predicted that interest rates will fall in 2025. By taking advantage of interest rate movements, you may score a competitive mortgage package and get a better overall deal.
However, there are benefits to taking on a fixed rate home loan. Not only is it suited for those looking for stability in a volatile interest rate environment, but it is also preferable for those who are on a fixed budget and need certainty. Just remember to reprice or refinance your home loan when your lock-in period is up!
3. Lock-in Period
When doing mortgage loan comparisons, you may notice varying lock-in periods for home loans. During the lock-in period, you must stay with your lender and cannot reprice or refinance or redeem your loan. If you decide to switch to a mortgage loan with better terms when you are within your lock-in period, you will be subjected to a penalty.
But lock-in periods are not always bad. While having a longer lock-in period means you can’t take advantage of interest rate fluctuations, it also means you’re guarded against sudden spikes in home mortgage lending rates.
Additionally, some banks may waive penalty costs if you sell your property. They may also offer free conversions after your lock-in period, saving you the hassle of securing a new, more competitive home loan.
4. Exclusive Discounts and Cash Rewards
Banks often offer promotional home mortgage lending rates and other accompanying perks when you take a home loan with a new bank. From one-time offers of special low-interest rate mortgage loans to legal subsidies and cash rebates, these seasonal deals can reduce the cost of refinancing.
5. Mortgage Advice and Lender Reputation
With so many mortgage packages on the market, which should you pick? Which bank has the best reputation? For these questions, our PropertyGuru experts advises that it is most important to focus on selecting a loan package that suits your needs.
All banks and lenders are under the purview of the Monetary Authority of Singapore (MAS) and reputable. Aside from considering the most competitive loan package offered, individuals can weigh in on the turnaround time for refinancing and quality of customer service.
Additionally, it is helpful to know if the banks you’ve shortlisted have a history of adjusting their thereafter spread. Most importantly of all, you should go for a home loan that aligns with your property planning and financial goals.
Regardless of whether you’re a first-time homeowner or a seasoned investor, you must do your homework before selecting the best home loan. After careful consideration, you may find that the most suitable mortgage package may not be a low interest rate mortgage loan!
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