Your mortgage/ home loan might be one of the largest financial commitments you’ll ever make, so there are definitely many reasons for you to ensure that you don’t pay more than you should. While most borrowers may get fixated on low rates, there are many other important points that you should consider to ensure you get the best deal you can. Here, Easyrates highlights 5 reasons why you’re probably overpaying for your loan.
1. Not Shopping Around
Some of you might think that home loan rates will be similar across the banks in Singapore and will just walk into the bank you are currently doing your banking with. Did you know that there are more than 15 lenders in Singapore? The rates differ from one bank to another and are constantly changing. A bank that has the lowest rates this month, might not have the lowest rates the next month. Comparing a few options gives you a better idea on how to make the right decision. *Useful tip . Do look for mortgage brokers like Easyrates in the market who are able to help you shortlist the most suitable packages and provide you with a free comparison report, without having to do all the work.
2. Only Looking At The Initial Rates
Many home loan products come with an initial lower interest rate during a lock-in period. Some borrowers make the mistake of only focusing on the cheaper rates for the first 2 years without considering the fact that their loan term may stretch as long as 35 years. This is especially true for those that purchase new developments. As your payments are progressive, having a low interest initially will not result in much savings. You should be looking at overall interest for at least the first 3-4 years until your unit has obtained the Temporary Occupation Permit. Banks are also required to give you an MAS factsheet to get a clearer idea of how much interest you will be paying for the entire loan term. Don’t be taken in by what looks like a nice affordable payment, only to be shocked many years later when your rates shoot up.
3. Not Refinancing/Repricing
Banks in Singapore are renown for offering cheap teaser rates for the first few years and then ballooning up your rate subsequently, when you least expect it. If you are like most people, who are too busy with their daily lives, there is a high chance you won’t notice this interest rate hike. Refinancing is essentially a way to move your current mortgage to a new bank and take advantage of their lower rates, reducing your monthly repayments and interest in the process. It is imperative that you conduct a loan review every few years, before your lock in expires. This good habit can easily save you enough money for your annual family holidays as most of the time, the interest savings are substantial.
Start looking around about 6 months before your lock-in period is up so that you have some time to do some research. Banks typically require a 3-month notice period to redeem the loan. If this is still too troublesome and you want to be spoon fed, kindly drop us a note with your lock in expiry period and our easyrates Consultant will remind you to do a loan review when the time comes.
4. Undertaking The Recommendation Of Your Property Agent
Did you know property agents get a referral fee for every successful referral to a mortgage banker? Some property agents in Singapore actually work with mortgage bankers to provide home loans to their clients. This is quite a clever collaboration on their part, since both are providing complementary services. However, your agent’s recommendation might be biased since mortgage loans are not their specialty. Sometimes, they will just pass your contact on to a couple of bankers even though that bank might have the most expensive package! We advocate that you utilise an unbiased third-party loan comparison platform like ours to search for the best home loan suited to your needs!
5. Not Taking Advantage Of Related Bank Products
Most of us have a preferred bank that we use, knowing this, some banks have cleverly rolled out products that hook us in with sweet deals when you increase your overall banking relationship with them. One such product is an interest offset account where your deposits placed in this account, will earn the same rate of interest as they are charging you for your mortgage. This account is fully flexible and you are free to withdraw and deposit funds. This is especially useful if you have spare cash sitting around not earning interest.
Another such product is the all in one banking, where the banks will reward you for having as many banking relationships with them. (eg- salary crediting, credit cards, mortgage loan. Investments). Funds in this account earn up to 3.25% a year. By taking advantage of your existing banking relationship with your preferred bank, you may be able to find loan packages that offer you special rates you probably wouldn’t be able to match outside.
Before you sign up for a mortgage/ home loan, remember that it’s a long-term financial commitment, probably the biggest you’d ever have. We recommend spending a bit of time to research and understand your options. We hope that the 5 tips above can help guide you to select the most suitable package
Wayne Quek, CFA
A former relationship manager turned full time entrepreneur and mortgage guru. When he’s not helping others save thousands on their mortgage, you can find him sweating it out at a CrossFit session or satisfying his wanderlust in a remote corner of the world.