Getting a housing mortgage loan is quite easy, but is it easy to choose which package to go for 20 years? The fixed interest rate is tempting while the floating interest rates are scary. Which one is best for you in this present economic climate?
Fixed interest rate
Fixed bank rate refers to the fixed equal installments over the life of the home loan. The interest are served/paid during the early part of the monthly payments. The principal is served in the later parts of the tenure.
One of the greatest benefits is the fixed interest rate you enjoy regardless of the market conditions. If you want to budget ahead, you may want to have a fixed monthly schedule because it brings more certainty and security for you.
Being fixed, it does not provide you a lower interest rate in case the market interest rate decreases at any point in time. The fixed interest rate usually is 1 to 2.5% higher than the floating rate. Choosing the fixed interest rate is good when you can predict a rise of the interest rates in the upcoming years.
Floating bank rates
Floating bank rate varies depending on the market conditions. Although it is cheaper than the fixed rate, it can be surprising at times if it rises along with the changing market conditions. However, the fluctuation can be for shorter periods only.
With the floating bank rate, you can potentially pay off your principal faster even if you keep your repayments at the same amount whenever the interest rates go down.
Procedures in purchasing a land or property in Singapore
You can choose the Option to Purchase or initiate a Sale and Purchase Agreement. The contract can be made by the exercise of an Option, both parties (buyer and seller) signing an Agreement, or by correspondence. Most contracts that are silent on certain points will automatically follow the provisions of the Singapore Law Society's Conditions of Sale 1999, which is usually incorporated in the terms and conditions.
Most banks offer the fixed, variable, and market pegged rates. The fixed bank rate does not allow prepayment. If you choose to prepay, then there is a big likelihood you are going to incur penalty. The variable and the market pegged loans allow full settlement and prepayments without penalty.
Which is which? Floating rate or fixed rate?
Most banks give a fixed rate in 2 or 3 year time frame. Rarely would a bank extend its fixed rate up to 5 years nowadays. If the rate would be much higher after the fixed rate term, then you need to find a refinancing package.
Subject to the fluctuation of the SIBOR rate and of the stability of your income, you can choose the floating rate after your fixed rate expires. Depending on how much you owe your bank, a difference of 1% can already save you much dollars. I would prefer you choose the floating rate, which is usually a 1% lower than the fixed rate.