Ravi Chandran
Home loan comparison to assess best fit may give you better savings over the long-run in mortgage payments
Why different lenders offer different rates for almost identical home loans? Careful home loan comparison will save you thousands
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If you have been shopping around for best home loans you may have noticed that different banks offer different rates and that even these may greatly vary at different points in time. The one big reason why this is so is because mortgages are complicated business and in this industry, there is no such thing a ‘one-size-fits-all’ approach.
From local and foreign banks, to financial institutions, and credit cooperatives, there are many players in the mortgage business. These players have different amounts of funds at their disposal at different points in time, and based on supply and demand, these lenders offer different rates and repayment schemes.
The better known names of these lenders may offer higher rates in exchange for their perceived trust and familiarity of their brand. While smaller players may offer near-rock-bottom rates just to stay in contention with the ‘big boys’. Whatever it may be, there is big competition among the mortgagees and this is good news for the mortgagor.
WHICH IS WHY HOME LOAN COMPARISON WILL HELP YOU DETERMINE WHICH RATE IS GOOD FOR YOU OVER THE LONG TERM IN MORTGAGE PAYMENTS?
The industry players offer different rate types such as 1-month Singapore Interbank Offered (SIBOR), Swap Offered Rate (SOR), 18-month Fixed Home Rates (FHR18), and floating rates. Our local lenders are already transitioning to SORA rates.
Whether it is SORA, or SIBOR, or SOR, all are open to public scrutiny as they are determined by the interactions between multiple banks. These rates are therefore quite popular among home buyers as they offer transparency and security for the mortgagors.
Fixed Home Rates (FHR) means the interest rate of the property loan is pegged to the bank’s fixed deposit rate. The FHR is usually followed by a number (such as 18). The number denotes the average fixed deposit rate over a given period. This means that the FHR 18 is pegged to the lender’s 18-month, average fixed deposit rate (which would differ from FHR9, and so forth).
There are some inherent risks in FHR as the mortgagee can unilaterally exercise control over the interest rates, thereby increasing costs for the borrowers. But financial institutions are often not very inclined to raise such rates because by doing so they increase costs to themselves.
Floating rates which are usually offered with a ‘lock-in’ period may charge lower interest at the outset, will fluctuate on a daily basis as the SIBOR or SOR rates move up or down. As such, floating rates could rise above the fixed rates or could drop even lower.
When you are diligently doing home loan comparison you will notice that there are different rates for different borrowers looking at mortgage payments over long term
Also, be mindful that not everybody qualifies for the same mortgage rates. That’s because lenders use different tools and models for assessing risk, and for pricing loans based on the perceived risk the borrower brings. The interest rates your mortgagee offers you are partly determined by your credit score, your debt to income ratio, and the amount of money you were planning to put down on the loan. These are some of the strongest factors that influence rates (though they’re not the only ones).
The bottom-line is, different mortgage rates for different borrowers is good news for the mortgagor. But you have to be diligent in comparing the different home loans to see which fits you best and gives you better savings in mortgage payments over the long-run.
While doing home loan comparison and looking for better savings in mortgage payments, there is no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.
A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan, and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs.
Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate.
This fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less-favorable rate. If that happens, try to negotiate a compromise with the lender or broker.
If you are looking for good mortgage brokers because you are ensure of funds availability for purchase, trusted mortgage consultants can set you up on a path that can get you a home loan in a quick and seamless manner.
Good mortgage consultants have close links with the best lenders in town and can help you compare Singapore home loans and settle for a package that best suits your home or commercial purchase needs. You should also find out money saving tips.
Whether you are looking for a new home loan or to refinance your existing one, a Mortgage broker can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them.
