Good interior design and renovation need not be expensive
Am terrible at numbers. Thankfully my DH is pretty, pretty good at that, and he works at a software company that sells their solutions to banks. And so when it comes to shopping for a bank loan, he took up the bulk of the work quite naturally. To all the rest of us mortals who have developed a banking jargon phobia (i.e. me), we share our thoughts on what factors to consider when shopping for a home loan.
Caveat: I do not work for any banks or know a lot about HDB loans. So if there’s any inaccuracies below, please leave a comment and help me (and my readers) improve on our knowledge. There are also very good online resource that’s worth checking out.
Commercial bank loan vs HDB loan?
If you are buying public housing, the natural choice for many is to take up a loan from the government (HDB, to be specific). You may assume since its the Singapore government they will take care of their citizens by giving the best loan rates. Nope! Truth is, most commercial bank loan rates are now lower than HDB loan rates.
HDB loan rates is pegged to CPF interest rate + 0.1%. For a long time, CPF interest rates has been stable at 2.5%, hence HDB loan rates is 2.6%. Most private bank loan rates are between 1.2% – 1.8%. As you can see, there is quite a gap here.
Pro – No lock-in for HDB loans, so you can switch to commercial bank loans at any time. HDB loan rates is also fixed, no matter how much SIBOR fluctuates. (Read about SIBOR below). If you are a first-time HDB buyer and you’re taking up a HDB loan, then you will get to enjoy the grants that comes from HDB too.
Cons – HDB loan rates are still much higher than many commercial bank home loans.
Of note, once you decide to switch to a commercial bank home loan, you cannot go back on HDB loan.
Interest rate is usually shown as SIBOR + X%. SIBOR stands for Singapore Interbank Offer Rate, and this is determined by Association Banks in Singapore. This refers to the rates a bank pays to another bank for lending to each other. Put in plain English, SIBOR is a bank’s “cost price”. Which is why they need to add their margin (+ X%). The geeks among us can read more about it here. To know the current SIBOR rates, check out the Association of Banks in Singapore website.
Our loan terms are as follow:
1st year: 0.85% above 3-month SIBOR
2nd year: 0.85% above 3-month SIBOR
3rd year: 0.85% above 3-month SIBOR
Thereafter 1.25% above 3-month SIBOR
No lock in periods.
This essentially means you will be bound to the bank and cannot switch to another bank (called refinancing) or pay up your remaining loan amounts without incurring a penalty. Most banks now have lock-in periods kicking in after a number of years from your first repayment. Others have no lock-in at all. Some practice lock-in rates, instead of periods. Depending on your situation, having lock-in may or may not work to your advantage. E.g. if you are intending to sell your property after a few years, then having no lock-in works best. If you are intending to stay in that apartment forever and forever (well, kinda), then having a lock-in rate will give you some peace of mind, especially if it’s a very low rate.
Take your time to shop
There are many online tools to help you compare rates. Take your time to understand the terms and ask questions and do not be pressured by the bankers to sign on the dotted line until you have read the fine prints.
Your relationship with your banker counts most
When we started shopping for a commercial bank loan, we were met with mixed reception. Our situation is rather unique – we didn’t have any income records in our home ground for the last 10 years since we’ve been working in China and our income was paid in RMB, and so some banks see us as aliens or maybe conman. At one particular “D__” local bank , we were given the cold shoulder (they probably thought we are Chinese PRs). So we finally came to “U__” bank whose banker is very patient and explained the jargon. We were like 4-year-olds asking the most basic questions and he didn’t roll his eyes at us (thanks James!).
Getting a bank loan is definitely a stressful exercise, but it’s worth every effort to do this FIRST, before you start shopping for your apartment. US already has the practice of getting all buyers to go through a credit rating agency to ensure buyers are able to pay their mortgages and not overextend themselves. Singapore still hasn’t come to that stage yet, so we did our own credit rating by working with our banker in analyzing our financials. It helped tremendously for us to know where to draw “the line” so we do not overextend ourselves in naivety.