Flats cost hundreds of thousands of dollars, which means most people must take out a home mortgage to support their purchase. Here, we review different loan alternatives for buying a flat, depending on whether you favour fixed or variable interest rates. Why you should clear off your mortgage. Taking out debt is a big decision because it binds you to a repayment plan. It is likely to switch to another mortgage after four, five or seven years, depending on your preference
Choosing a Mortgage
A borrower must apply for a home loan, which means he must meet specific criteria. For example, he must be over 18 years of age, have sufficient income and assets, be a Singapore citizen or permanent resident, and not be the property owner in another country. With a fixed-rate mortgage, the lender sets the interest rate for you. A borrower can have a fixed-rate mortgage for up to five years. After that, the lender adjusts the interest rate annually to take account of changes in the Consumer Prices Index (CPI) and the Bank of England base rate to prevent you from being overcharged. Floating rate loans are more flexible but cheaper in the long run.
Why You Should Pay Off Your Mortgage
Most Singaporeans plan to stay in their HDB flats for a long time and therefore have plans to roll over the loan for an apartment you want to buy. In 2013, for example, 80 per cent of flat buyers with HDB loans extended their mortgage for at least seven years. How to pay off your mortgage faster There are several ways to pay off your mortgage faster. 1. use reverse mortgage Reverse mortgages are traditionally used for older people who want to monetise their home after retirement and are no longer able to manage their home loans. However, people over the age of 55 also have the option of getting a reverse mortgage in Singapore. A reverse mortgage allows you to stay in your HDB flat and receive monthly amounts for the rest of your life or until you die.
Make a Mortgage Switch
With a 10-year term, after which the loan balance would be paid off, the total cost of the flat is about the same as if you were to buy the property outright, minus the transaction costs. It is, therefore, often a good idea to opt for a mortgage exchange at this time to save money and benefit from lower interest rates. In exchange for giving up the next 10 years of interest, you get the property for free and get a new, larger home. You can also take out a second mortgage (or two, in some cases) to finance a purchase if you have excess income. When to use a mortgage switch For HDB resale flats, you can apply for a home loan and transfer it to the next owner after five years.
Most people who buy a house today pay for their home with a mortgage, but paying it off in 10 years or less is doable.