What Bank Lends The Most Mortgage – Walking through showrooms and talking to real estate agents, buying a home in Singapore seems like a breeze.
… Until you get to the funding part. Between all the financial jargon, the millions of pros and cons, and the dreaded paperwork, it feels like you’re back at school preparing for that next Economics exam.
What Bank Lends The Most Mortgage
There are so many questions swirling around. Should you go for a bank or HDB loan? How much is the down payment? What is LTV, MSR and TDSR?!
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In this article, we will systematically tackle the big problem of mortgage lending by breaking it down into 5 practical considerations:
If you’re buying an HDB flat, you can borrow from HDB itself (which we’ll call an “HDB loan”) or any bank in Singapore (which we’ll call a “bank loan”). Consider the following three factors to make your decision:
If you’re young and short on cash, an HDB loan is certainly attractive. But some other home buyers choose to borrow from a bank to reduce future mortgage payments and save more in CPF for retirement.
With HDB loans, your mortgage interest rate is a standard 2.6% per annum. (2.5% + 0.1%) based on the current CPF interest rate, unchanged over the years.
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Bank loans have different loan packages and thus different interest rates. But one thing is certain: bank loans allow you to borrow at an interest rate below 2.6%. When applied to a large amount, the savings can be quite significant! And it may even qualify you to earn more interest on your savings accounts.
Every bank offers some home loan packages at any given time. These are the three types you will find:
Variable rate loans often have lower interest rates than fixed rate loans, and homeowners can choose them for potentially lower interest rates than a fixed rate loan.
It also offers a two-in-one home loan that allows the borrower to enjoy the best of both worlds by having a portion of the loan amount under a fixed rate package for convenience and also benefit from a variable interest rate. package for the remaining amount of the loan.
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In short, a bank loan can offer lower interest rates than an HDB loan. The main trade-off is that you will have to track your interest rate; they usually expire after two or three years. Therefore, you should periodically reevaluate your mortgage loan (with the same bank) or refinance (choose another bank for a mortgage).
By the way, even if you opt for an HDB loan first, you can always refinance to a bank loan to take advantage of lower interest rates.
The LTV ratio simply refers to the amount you can borrow against the price of your future home. For your first home loan, it is 75% with a bank loan or 85% with an HDB loan.
But that doesn’t mean you can get all 75% or 85%, no questions asked! Because when you apply for a loan, the financier will also look at your TDSR. TDSR is the portion of your income that goes towards all your debts like car loans and education loans. Along with home loan, TDSR cannot exceed 55% of your gross monthly income.
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If you’re buying an HDB flat or executive condominium, there’s another “R” to consider: MSR. This is the portion of your gross monthly income that goes towards paying off the mortgage loan and cannot exceed 30%.
All these rules and ratios may seem confusing and restrictive, but they are there to prevent us from biting off more than we can chew, i.e. borrowing beyond our means.
See how they affect your Total Debt Service Ratio (TDSR) and Mortgage Service Ratio (MSR). Note: MSR is applicable for HDB/EC only.
TDSR: Since TDSR is 55%, you can spend up to S$3,025 per month on loan repayments (across all types).
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MSR: As the MSR is 30%, you can spend up to S$1,650 per month on your HDB/EC home loan. (S$1,650 this month is within your total budget of S$3,025.)
Yes, to understand the above borrowing limits, you need to know how much your monthly loan payments are; this is easily done with the help of a mortgage loan calculator. The longer your loan term, the smaller and more manageable your loan payments will be.
Singaporeans have the option of using savings from their CPF Ordinary Account to pay their home loan installments, so should you pay with CPF or cash?
If you need cash flow for your daily expenses and investments, paying with CPF is certainly attractive. But you would be giving up the high interest rate on your CPF money. When you finally sell your house, you must pay back the CPF OA deposits you paid for it, along with any accrued interest.
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On the other hand, paying off your loan in cash allows you to maximize that 2.5% interest rate on your CPF OA savings. Not only that, you can pocket the proceeds from future sales – no need to top up your CPF.
In terms of amortization, it is also possible to partially or fully amortize your home loan if, for example, you have a windfall and want to use it for a mortgage. You may have to pay a small penalty to do this, but it also saves your interest in the long run.
There is so much to digest and think about that it may take you a few days to think about your home loan decision.
Once you have done this and decided to proceed with a bank loan, the next step is to get your home loan approved in principle (IPA). This is a document from the bank that tells you how much they are willing to lend you, taking into account your TDSR, MSR, income and credit score.
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You must insure the IPA before paying the home selection fee. This is because if you find you can’t borrow enough to pay off the property, you won’t be able to get the option back. In fact, some estate agents require you to come with an IPA before proceeding with the transaction.
The process for obtaining an IPA varies from bank to bank, but it’s quick and easy. It only takes 10 minutes to complete your application and submit it for in-principle approval.
After submitting the application, you can upload the supporting documents to the portal anytime. Once your IPA application is complete and approved, you can finally buy your dream home for real.
Check out MyHome to calculate amounts and find a home that meets your budget and preferences. The best part: it takes the guesswork out of it.
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, so you know exactly how much you can borrow for your home, which gives you an accurate idea of your budget. Since the dot com boom of the late 1990s, online mortgage companies have become an increasingly powerful force. important in mortgage lending. credit sector. Rocket Mortgage, the leader in mortgages, is now the nation’s largest mortgage lender. Rocket Mortgage used to be called Quicken Loans, but changed its name in May 2021 to align with its parent company, Rocket Companies.
Does the growth of players like Rocket Mortgage, who offer an automated approval process through their platforms, mean that web-based companies can offer more than your community bank down the street? Not necessarily. Where you go for a loan depends largely on what’s convenient for you and where you can get the best rates.
Both types of lenders offer mortgage pre-approval. Pre-approval can sometimes help get your offer accepted in-house. However, there are other significant differences between them that may shape which one you like better.
Going with an online lender offers certain advantages, especially if you are someone who likes to be in control of the loan process. Benefits of going with a company like Rocket Mortgage include:
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When you use an online lender like Rocket Mortgage, you will almost always be sold to another company for servicing when your loan closes. This means you have no control over which company will hold your mortgage and who will ultimately make your payments. Although some local banks sell mortgages to other companies for servicing, this is much less likely to happen than with an online lender with a virtual foreclosure.
When it comes to big financial decisions, some people are more comfortable doing business in person. With Rocket Mortgage, you speak to someone who works in a call center that may be in another part of the country.
If you’re someone who likes to look people in the eye and shake hands while getting advice, a local lender might be the best way to go.
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