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Step 5 : Make It Home Sweet Home

Sooner or later, almost all of us buy a home, which means sooner or later, most of us need a mortgage.  As far as borrowing goes, mortgages are considered acceptable debt: mortgage providers are prepared to lend people money at a reasonable rate, and it is usually a far cheaper way of borrowing than almost any other form of debt, because it is secured against a property.

As with all financial products, the one thing we cannot stress enough is the importance of shopping around for the best possible mortgage for your needs.

HDB Loan vs. a Bank Loan

If you are purchasing a HDB flat, you will likely come across this dilemma.  But let’s start with answering the question, what exactly is a HDB loan?

A HDB Loan

  • Not exactly earth-shattering news, but you can only get a HDB loan when you purchase a HDB flat
  • It is at 0.1% above the prevailing CPF interest rate (the minimum CPF rate is 2.5%, so the minimum HDB loan interest rate will be 2.6%)

The loan is also subject to eligibility requirements such as one buyer has to be Singaporean, the monthly household income does not exceed $10,000, buyers must not own any private property (not in Singapore, not anywhere in the world), and several more.  We won’t go through the full list of HDB’s eligibility requirements here, so please visit the HDB website if you want to find out more.

You need to consider several factors to decide whether or not to go with a HDB loan or a bank loan.  Of course, one big factor is the interest rate.  Depending on the prevailing interest rate, a HDB loan might have a higher interest rate than a bank loan.  Another factor to consider is repayment.  A HDB loan does not carry any repayment penalties while most bank loans have a penalty if you pay off in the first few years.

Foolish tips for mortgage holders

Whatever your mortgage, think about remortgaging! Most lenders reserve their best deals for new customers which means you can often get a better deal by remortgaging every few years. While remortgaging can take time to arrange, with rates for new mortgages up to two percentage points lower than the typical standard variable rate, remortgaging could save you hundreds of dollars a year.

Overpay your mortgage each month. If you can do it without incurring penalties, overpaying even $50 a month could save you thousands of dollars in interest in the long term and take years off the term of your mortgage, bringing forward the day when you own your home outright.

A final note on mortgages

Be a savvy mortgage shopper! Look at the Annual Percentage Rate (APR – also known as the overall cost for comparison), how often interest is calculated (daily is better than monthly and monthly is better than annually), how long any early repayment charges will keep you locked in for, and if you can overpay without incurring penalties.