Homeowners beware of new loan rates

One of Singapore's leading home lenders, DBS, just launched a home loan promotion that offers a fixed rate package with an introductory rate of 1.89% (as of July 18, 2019)!

One of the lowest fixed rates the market has ever seen.

Understand the Difference Between Fixed & Floating Rates

Before you even comparing home loans or refinancing options, lets first understand the difference between fixed and floating rates.

With a fixed rate, borrowers are guaranteed a set interest rate for a number of years, while floating rates can change frequently based on market rates. Neither loan type is always more advantageous, it usually depends on the interest rate in the market.

For example, fixed interest rates gives borrowers protection against increased mortgage, but floating rates may become cheaper if rates fall after the loan is approved.

Which is why it is noteworthy that the DBS low fixed rate falls below the average.

Average Housing Loan Interest Rates As of July 19, 2019

Image Source: Value Champion

Important: Compare Total Interest During Lock-In Period

Did the new loan rate get you interested ? As enticing as the DBS promotional fixed interest rates might be, the promotional rate offered by DBS increases substantially in the second year of the loan.

Consumers would do well to carefully review their options before applying for a loan. With home loans, it is most important to compare the total interest cost during the lock-in period of each loan.

The lock-in period is important because it is the period in which borrowers cannot refinance their loan, which means to get a better interest term and rate following the lock-in period. Homeowners could feasibly refinance if their loan's interest rate is no longer competitive.

Weigh the Costs and Benefits of Refinancing

While home loan refinancing is quite popular in Singapore, it is important to clearly understand the associated costs.

Refinancing often  entails valuation and legal fees that can cost several thousand dollars in total. Some banks will charge partial/full redemption fees or cancellation fees to those that choose to refinance.

Image Source: Value Champion

If your intention is to be hands-on with your housing loan, choose a bank that offers a subsidy or reduced fee; or should you choose to reprice (instead of refinance) your loan with your current lender, you can avoid some of the fees associated by leaving for a new bank.

Do Your Mortgage Loan Homework

For many individuals, purchasing a home is the biggest investment of their life. It is crucial to understand all of the intricacies of your borrowing options before proceeding with a new home loan or refinancing offer. Ultimately, it is possible to save a significant amount of money through proper research and due diligence.

Remember to always read the fine print.

Infographic and Content Credit: Value Champion

Edited by the Renopedia Team

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