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Singapore Home Loan Glossary
You may ask yourself this question, “How do I compare home loan?” Before you compare home loan, it is important that you fully understand Singapore home loan glossary in order to do your comparison properly.
Home Loan in Singapore
Do you know that in Singapore, the home loans terminology differs from that of the US and elsewhere? In the US, there are Fico score, in Singapore there is none.
Approval-in-Principle
This process allows the bank to first assess your cash flow and your liabilities and determine how much they would be able to lend to you. www.iCompareLoan.com mortgage consultants can help you to conduct Approval-in-Principle so that you can be assured of a home loan. Please do note that Approval-in-principle are simply that, “approval-in-principle”, while there is much more certainty that the banks can lend you, the bank’s credit department have the final say whether to lend or not after looking at your credit report. Some banks will assess the credit report for an Approval-In-Principle home loans while some banks do not assess the credit report for an Approval-in-Principle, therefore it is best to be honest about your financial situation so that you do not end up with an “approval-in-principle” only for the bank to reject it at the last minute after finding out past credit issues.
Approval-in-principle are only valid for about 1 month.
Amortization
The process of paying off a debt (often from a loan or mortgage) over time through regular payments. The monthly payment is broken down into interest payments and the remaining amount is for principal repayments. In the early years, payments consist largely of interest; as time goes on, principal repayments increases. At the end of the loan tenure, the entire debt will be repaid.
Amortization Schedule
This is basically your home loan repayment schedule showing you the repayment of your principle and your interest over the entire span of your loan amount.
Bridging Loan
The bridging loan is usually a temporary term loan used to pay for the down-payment or part of the down-payment of the new property purchase. The bridging loan is most often collaterised against a current property that the buyer owns, but is in the process of being sold. Or in some cases, the bridging loan is collaterised against a current property that is already sold, but whose sales proceeds have not arrived. Bridging loans are very tricky as timing of execution is of critical essence. Make sure to check with your bank to make doubly sure or else your will end up in a situation where you have no funds to execute a property transaction where you have already exercised the option and entered into a sale and purchase agreement.
Board Rate
Board rate or mortgage rates and many other terminologies were invented by banks to be used as a reference in which to peg their variable rates. For example, if the bank set their “board rate” to 4.25% and the variable rate you pay is 2%. That would mean it is (Board rate – 2.25%). In case the bank modifies the board rate, it would affect your interest rates.
Building Under Construction (BUC)
Building under construction are buildings which have the permit to launch for sale but are still being constructed. This applies mostly to new development such as Condominiums whose Temporary Occupation Permit (TOP) is still some time away. Banks treat BUC and completed properties differently.
Cancellation Fees
The penalty that banks charge, usually a percentage of the loan amount (or a percentage of an un-disbursed amount), if you were to cancel your housing loan after you have accepted the Letter of Offer but before the housing loan is disbursed or cancel the home loan after partial funds have been disbursed but the others are not.
If you re-finance your home loan when the funds have not been fully disbursed, it would be considered a cancellation and cancellation fees would apply.
Cashback or Cash incentive Housing Loan
The lender refunds a percentage of the housing loan the cashback and you are usually tied into the loan for a number of years in which a penalty is applicable if the loan is redeemed. This type of loans is also usually useful for home owners who are contemplating redeeming a loan which is still in penalty period.
Combo Housing Loan
A combo or hybrid housing loan can be sub-divided into different parts for a single property. Each part can be treated as a separate housing loan so you can choose a package for each division. In other words, if you borrow $1m for a Singapore property, you can opt to have $500,000 under a fixed rate regime and another $500,000 under a Sibor rate package. Both loans are collaterised against the same property.
Commitment Fee
Some banks use the terminology Commitment fee. This is equal to a lock-in period. A typical clause may look like this, “A commitment fee of 1.5% is payable if loan is redeemed within 24 months from the disbursement of the loan.”
Claw-back Period
If you are to fully redeem your mortgage within the claw-back period, the lender will reclaim most of the subsidies given to you. These would usually be the legal subsidy and may include valuation fees, fire insurance premiums, cash incentive, etc.
Certificate of Statutory Completion (CSC)
The Commissioner of Building Control will issue the Certificate of Statutory Completion to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or Temporary Occupancy Permit (TOP) is granted.
Fixed Rate Housing Loan
Fixed rate housing loans provide you the stability and ease of planning your cash flow. However Fixed rate housing loans usually comes with a lock-in period which correspond to the duration where the loan is fixed.
Floating or Variable Rate Housing Loan
The interest rate can rise or fall throughout the tenure of the loan. Lenders usually give at least one months notice when adjustments are made to the interest rate. Most lenders allow partial prepayments for this type of loan, making this a good package if you intend to repay a significant portion of your housing loan in the initial few years.
Floating rate packages comes in 3 main forms: –
- Bank’s variable rate packages which are pegged to the bank’s internal reference.
- Sibor pegged housing loans.
- Sor pegged housing loans.
Full Redemption Penalty
The amount that banks charge, usually a percentage of the loan amount, if you were to fully repay your housing loan within a lock-in period.
Interest-offset Housing Loan Features
This feature allows you to offset your housing loan interest with funds deposited into an account designated by the bank. For example, your housing loan may be $1m and you also have $300,000 cash which you do not intend to pay down the loan. You could put this $300,000 cash into the designated account to offset against housing loan interest payable, (i.e. your effective loan is ($1m – $300,000 = $700,000) and you will only interest on $700,000 rather than $1m in case this is a 1-for-1 interest offset. For example, if the interest cost is 3%, the bank will charge you interest of 3% on the $m and give you interest of 3% on $300,000. In case it is a 2/3 offset, for a 3% interest rates, the bank will charge you 3% for your $1m loan and give you 2% interest for your $300,000 cash.
Many business people like this package as it allows them the flexibility to incur less interest costs if they do not use their funds, while still giving them the choice to use the funds like a current account.
If the housing loan is paid down, then this option of using cash in case of an emergency would disappear.
Interest-only Housing Loan
Monthly payments consist entirely of the interest due on your loan so that the balance you owe is not reduced during the term.
Joint Tenancy
This is a common structure of property between 2 parties, usually husband and wife. Under joint tenancy, whenever 1 person passes away, the property ownership and mortgage will be transferred over to the other person. Even if the other person has a will, the property will not be considered his estate.
Letter of Offer (LO)
A contract between the borrower(s) and the bank stating the terms of the housing loan package.
Loan Quantum
The loan quantum or principal is the amount of money that you borrow.
Loan Tenure
The period of time that you will take to fully repay your loan.
Loan to Value (LTV)
A percentage figure indicating the size of the housing loan on a property in relation to its value. Thus, a house worth S$500 000 with a mortgage of S$400 000 would have a loan to value of 80%. Most banks and financial institutions have better housing loan deals for LTV 80% and below. The maximum LTV that lenders can legally go to in Singapore is 90%. This is mandated by the Monetary Authority of Singapore (MAS).
Lock-in Period
The number of years that you are tied to your lender. If you fully redeem your loan within this period, there will be a full redemption penalty that is equal to a percentage of your loan quantum. Lenders may also charge a penalty for making partial payments within this period.
Offer to Purchase
This is a contract which became popular in recent years. This is for property buyers to make an offer to the seller to induce him/her to sell. Upon acceptance, the owner will issue an Option to purchase.
Option to Purchase – OTP
This is a contract which compels the property owner to sell you the property at an agreed price if you give a 1% deposit. The Option to Purchase (OTP) usually gives a 14 day period in which to exercise the option. The law society gives certain guides on how an Option to Purchase should be drafted. However we have also seen many Option to Purchase contracts which are drafted by the Seller’s Property agents or property agencies which are unfair to the Property Buyer.
It is therefore our advice that when a deal is imminent, ask the property agent to send you a draft of the Option to purchase for you to first go through with your lawyer. If you do not have a Lawyer and would like us to help you take a quick look, you can email us at loans@propertyBUYER.com.sg, either us or our panel of lawyers can take a quick look at it and give you some comments. But do not, although we are generally more conservative in our approach, we cannot guarantee to be able to spot all errors or omissions and you promise not to hold us accountable to it.
Partial Redemption Penalty
The amount that mortgage lenders charge, usually a percentage of the loan amount, if you were to prepay your housing loan within a lock-in period.
Payment Holiday Housing Loan
A relatively new type of mortgage in the Singapore market. You take a break towards paying of your interest or monthly installment at certain periods during your loan tenure. This takes many forms, there is also a beautiful Sunday package which gives the borrowing 1 day free interest rate, which amounts to 1/7 reduction in actual interest rates.
Prepayment
Payments that you make in addition to the monthly installments. Prepayments reduces the outstanding loan balance owing to the bank.
Refinancing
Switching from one housing loan package to another, usually to get better rates or terms and condition.
Re-pricing
Switching from one housing loan package to another deal with the same lender.
Sales and Purchase agreement (S&P)
This is a document issued by the developer to the property buyer. Signing this agreement solidifies your purchase.
Seller Stamp Duty
Seller stamp duty is applicable to properties bought and sold within a certain time frame.
Singapore Inter-bank Offered Rate (SIBOR)
Singapore Inter-bank Offered Rate is published by the Association of Banks in Singapore. This market is almost equivalent to the Federal Reserve funds market. Banks lend excess funds to each other at the Association of Banks in Singapore. The rates will be determined by the demand of funds and the availability of funds. During times of extreme financial stress where banks view other banks with suspicion, funds become scarce and monetary authority of Singapore is known to intervene by pumping funds into this market.
Singapore Swap Offer Rate (SOR)
Swaps are a form of financial derivatives. Swaps in Singapore are contracts of US$ versus S$ contracts which banks use to avoid converting their currency so as to incur the losses from bid and spread. As banks trade these Swap contracts within the Association of Banks of Singapore (ABS), the rates move in tandem with supply and demand. Swap Offer Rate is the rate that the banks will lend to each other at a pre-determined rate.
Stamp Duty
Stamp duty is the fee payable to the Inland revenue authority of Singapore (IRAS) for any property transaction. Currently stamp duty is applicable for property buyer. There is also an additional buyer stamp duty applicable on foreigners, and/or Singapore citizen buying more than a few properties.
Temporary Occupancy Permit (TOP)
The Commissioner of Building Control will issue the Temporary Occupation Permit to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or TOP is granted. A TOP, unlike a CSC, is not compulsory, but is usually obtained before a CSC as requirements for a TOP is less stringent.
Tenancy in Common
Tenancy in common is a more commonly used structure amongst friends or multiple parties buying a property. When any of the owners passes away, the share of the property gets transferred to his/her estate in accordance to his will.
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