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Useful Tips To Help You Shop for a Home Loan To Save Money

Most consumers want to know which housing loan is the best in town. Unfortunately, that is the wrong question to ask.

There are more than 100 housing loan packages in the market and what is best for one person might not necessarily be the best for you. Each package has different features that are suitable for different needs.

Thus, a more appropriate question to ask is what are the factors that you should consider in choosing a housing loan? Here are some things you should note before signing on the dotted line for a home loan.

Pre-approval: Before you close a deal to buy a property, it is advisable for you to first get pre-approved for a bank loan.

With the setting up of the Credit Bureau in 2002, banks can now check your repayment history of loans and credit cards taken up with other banks. Were you late in paying instalments? Have you ever been sued? If the answer is yes, banks may not approve your loan application or they might approve a lower loan quantum. This could jeopardise your purchase of a property, and you might even have to forfeit the option money you paid.

Loan duration: A minimum loan duration is five years and the maximum 30 or 35 years, or till you are 65 or 70 years old, whichever is lower.

One way to decide on loan duration is to time the loan duration to match your intended retirement age. So, if you plan to retire by age 60, you should ensure the loan is fully paid up before you reach 60, rather than stretch it till you’re 65.

Floating or fixed: If you think interest rates have peaked and are likely to go down, you might want a floating rather than a fixed rate package.

However, if you’re worried about the possibility of banks revising interest rates upwards, you might want a package which fixes the interest rate for the next one to three years instead. It might not make sense to fix rates for more than three years since the lock-in period for most packages ends after three years. You can always shop around for a better package after that.

Flexibility of repayments: If you intend to make a lump sum repayment within the next one to three years, you should look for a package that offers you the flexibility to make such repayments without penalty. Some packages impose a penalty fee of up to 1.5 per cent of any lump sum repayment you make.

Transparency of rates: If you want to know the exact basis for the interest rates charged on the housing loan, you can consider loans pegged to interest rates that are publicly available, such as the three-month Singapore Inter-bank Offer rate (Sibor) or Swap Offer Rate (SOR) which move according to market conditions.

Basically, a home buyer pays an agreed percentage above the variable SOR for a specified period. You might want to consider such a package if transparency is a key issue for you and you are of the view that Sibor or SOR rates are falling rather than rising.

Penalties: Ask if any penalty will be imposed if you make a full redemption of your loan and how long the penalty period is. Currently, there are some housing loan packages with zero penalty period, while most loans typically have a penalty period of one to three years.

Interest-only: If you are a high income earner and in high tax bracket, choosing an interest-only mortgage might make sense. You benefit through savings in income tax as the interest portion of loan instalments for investment properties is tax-deductible.

This package also works well for short-term investors. By paying back only the interest, investors would benefit from lower cash outflow until they sell the property. As a result, they may be able to invest in two properties instead of one.

Interest-offset: If you have substantial cash you might want to consider an interest-offset mortgage instead. This basically links your current account to your home loan. The interest earned in your current account is the same rate as that charged on your home loan. By offsetting the interest earned on your current account against your home loan interest, you can enjoy big savings – in time and money.

Every dollar you put into this current account would have same effect as making a partial repayment of your loan, but give you the added flexibility of drawing down the cash in the current account if you need to. Whereas if you do a lump sum prepayment, the cash is ‘locked’ in the property and you lose liquidity. Thus, an interest offset package enables you to pay a lower effective rate of interest on your housing loan so that a bigger portion of your monthly instalment goes toward reducing the principal. This allows you to pay off your loan sooner and pay less in interest.

Promotions: Sometimes, banks might offer special promotional packages. If you engage the services of a mortgage broker, he would be able to provide you updated information on such promotions which could translate to additional interest savings for you.

Why better to apply loan through a Competent Mortgage Broker? In the past, when consumers shopped for home loans, they had to contact each bank individually to gather information. This a tedious process that takes up a lot of time. In the last few years, with the emergence of independent mortgage brokers in Singapore, home loan shopping and comparison have been made easier.

Basically, an independent mortgage broker who knows your requirements can help you zoom in on the most attractive home loan packages. You typically do not have to pay for the service of a mortgage broker as banks pay them a fee as they also help banks save on staff costs and resources.

In more advanced countries such as the US and Australia, people usually apply for home loans through a mortgage broker rather than go to the bank directly. In Singapore, many people are still unaware of the services and benefits of engaging a mortgage broker, but things are likely to change with public education and increasing awareness.

Securing Home Loans With Bad Credit While Avoiding The Stress

Applying for a mortgage is not the most pleasant of experiences. Calculating what is affordable, a long-term budget and a complicated structure of interest rate types and combinations, can all cause a considerable amount of stress. When seeking a home loan with bad credit, the stress can be even greater

There is no point in denying that lenders do not make it easier for bad credit borrowers to get loans, but it is especially difficult when the loan sum is as much as $200,000. The chances of a bad credit borrower securing mortgage approval are a lot less likely.

But, the truth is that the mortgage terms are what matter most, not the credit score that an applicant has. So, when it comes to applying for a home loan, having a convincing application is the key. And, thankfully, there are a few ways in which enhance your application in that respect.

Know Your Financial State

The first thing to do when putting together an application strong enough to convince lenders to grant a home loan with bad credit is to understand the truth of your financial state. This provides a clear starting point, and offers the best assurance that the issues that need to be addressed will be.

The most important document in this regard is your credit report, which not only details your score but the factors that have contributed to it. With this information, the specific weakness that exists in your credit status and an effective recovery strategy can be identified, thus improving the likelihood of securing mortgage approval.

The strategy to be decided upon must set about increasing your credit reputation as quickly and effectively as possible. This should result in interest rates falling and the home loan repayments becoming more affordable.

Improve Your Credit Scores

So, how can a bad credit borrower set about improving their score, and so improve the chances of getting a home loan with bad credit? There is actually only one way – to clear some, if not all, of your existing debt. But to do this requires applying for funds too.

Securing those funds comes down to getting a consolidation loan, a single sum to replace multiple loan balances. The advantage of this is that the overall cost of loan repayments is dropped, with differing interest rates for each loan replaced by a single rate. And with a longer loan term, it can mean that the overall repayment cost falls by 50% each month.

This fall in cost makes securing mortgage approval a lot easier. And remember, a credit score only reflects past trends, not the current situation. So, as long as reliable employment and a low amount of existing debt are confirmed, a home loan is always attainable.

Prove The Mortgage Is Affordable

Of course, the bottom line when applying for any loan, not just a home loan with bad credit, is that the loan is affordable. This supersedes aspects like the size of your income or the stability of your employment. If the repayments are too much, the loan will be rejected.

Improving your a credit score plays a part in improving affordability, but there are other steps to take too. Perhaps the most obvious is to make a larger down payment, which would see the size of the required mortgage reduced. Securing mortgage approval becomes more likely because the debt and its associated repayments are less.

Another helpful choice is to take a longer home loan term. Instead of a 30-year mortgage, agree a 40-year term. This can see the monthly repayments fall by as much as $250. However, keep in mind that the interest paid over a longer term is going to be much higher.

Home Loan Rate – Tips on Finding the Best Rate

The home loan rate applied to your home mortgage is the cost of the money that you have borrowed. The money itself is called the principal, while the price you pay to borrow the money is considered the interest. In addition, you can expect to pay at least a few of the closing costs on your home loan. Usually, it is the seller who pays closing costs, but that is traditional, rather than a requirement. Each and every factor that is associated with the acquisition of the loan itself should be explored. A few dollars for a loan cost item, or a half percentage point on the loan rate can add up to thousands of dollars.

Know your broker

Choosing a loan broker that you trust or have done business with in the past can help you to find the best home loan rate on a mortgage. If you have not worked with a broker previously, do the due diligence required to get to know his or her reputation. Check the Better Business Bureau for complaints. Ask friends, family and neighbors who they used when they obtained a mortgage loan on their property. Ask why they selected the broker–it may be their brother-in-law. Your real estate buyer’s agent may be able to help you with the names of brokers they have dealt with in the past.

Clean up your credit file

Another way to improve your home loan rate is to clean up any inaccuracies that may have accrued on your credit file. There are three major credit reporting agencies that many lenders use to access information about how you have managed your financial obligations in the past. If you obtain a copy of these credit reports for yourself–which can be done each year at no cost–and remove any inaccurate or misleading information, you are much more likely to have a lower interest rate on your home loan.

Closing costs

Closing costs are those which typically are paid during the completion, explanation and signing of the loan documents. While they do not usually have a direct bearing on the home loan rate, they may require you to come up with cash in order to complete the loan. Many of the closing costs can be rolled into the cost of the mortgage, but this action means that you will be paying more interest dollars out during the course of the mortgage term.

Interest and term

The interest rate and the term are the two most critical factors when it comes to determining the home loan rate. The interest rate may be fixed or adjustable. The loan type may be an option adjustable rate mortgage, contain a balloon payment or sometimes an interest only loan. Only your personal financial circumstances will help you determine which is the best rate for you. Take time to review the factors in building the cost of the money for your mortgage and decide which will be the best option for your household.