To understand mortgage finance, you need to learn a few basic and simple rules. Essentially, you are borrowing an amount from a bank or lender to pay for a new property purchase. The amount you take out will determine how much you have to pay back, how long you have to pay the money back, and what interest rate you will be charged during the term.
If you live in Singapore, the first step you need to take is to understand how the system works. The process and options are a bit different from the rest of the world. It’s a major investment into your future, but it’s a decision that cannot and should not be taken lightly. Read on for a quick guide to understand mortgage financing in Singapore.
How It Works
A mortgage is a type of loan that you take out to finance the purchase of a property such as a home or business. No one can become a property owner overnight, and most people must apply for a loan because who has that kind of money lying around? A mortgage is a legal financial agreement that will be set up between yourself, the lender, and the credit union.
The lender or bank is authorized by the Singaporean credit union to supply you with the capital you need for your financial investment, and you sign to agree that you will pay them back each month. Only once a mortgage is completely paid off will you own the property and be able to call it yours. Until then, the bank or lender is the sole owner.
How Much Does it Cost?
The cost that you will be liable for is all factored in based on the value of the property, how much you can afford to put down as a deposit, and what you can afford to pay back each installment. In addition, where you live has a large impact on what a mortgage will cost you. Singapore offers governmental housing called HDB homes where you can get a subsidy from the government as a co-payment on the property.
You can use an HDB loan calculator to determine the individual price you pay in Singapore. You can get more information from Property Guru about financing your mortgage. The company offers lower interest rates whether you want to buy or rent a property, and they have virtual tours of everything that is vacant. Property Guru can answer any question you have about mortgage financing.
What’s Included in a Mortgage
Different mortgage types have specific stipulations regarding the interest rate and term; however, all mortgages have set criteria in place that need to be agreed to. This includes the principal amount of the loan, the interest rate, homeowners’ and mortgage insurance, and property taxes that you will be liable for.
Your principal amount is determined by the credit union based on your score and will decrease over time as you make payments. Interest rates are also calculated by your credit score. The higher the interest rate, the more risk you are for the lender. Property taxes are assessed by the value of the home, and what you will pay to the government. Homeowners insurance is incredibly important to protect yourself and your property from natural disasters and crime. Each of these amounts is calculated separately.
How To Get Approved
Before you can make an offer on a property, you need to get pre-approved. This is when you submit all of your financial and personal information to the bank and credit union based on what you can afford. If you start looking for a property before you have been approved, you may be shocked if you find out that you aren’t eligible for a big enough home loan. With pre-approval, you will have an accurate figure of what you can realistically afford, and it verifies that you can borrow and pay back the loan.
Sellers won’t consider you without pre-approval because you won’t be able to put an offer down. Once you have been approved, you can start hunting for a property that you love. You will also know your limits and what types of properties you can purchase without filing for bankruptcy. After this lengthy administrative process, the rest can go quite quickly, so have all of your ducks in a row beforehand.
Mortgage finance can be scary when you first approach it but as long as you have these few basics sorted out you will be fine. Looking for a new property whether as a home for your family or a business, is an exciting endeavor but you need to plan carefully. Have all of your paperwork in order before you start looking for a property and save up as much as you can so that you don’t need a massive mortgage loan that takes 40 years to pay off.