Property buyers were recently advised to be careful in their anticipation to fulfill their Singapore dream of purchasing a private unit.
Earlier this month, the Monetary Authority of Singapore (MAS) provided two scenarios wherein the private property sector could likely falter. Lately, after a marked rebound in the economy, the property sector seems to have levelled off to some extent.
MAS cautioned that home buyers could not assume that home loans will maintain its interest rates at their present rock bottom levels for an indefinite period of time.
It is possible that the interest rates will increase over the longer term as the economy rebounds, MAS warned.
In turn, this will increase the monthly installments of home loans that are not fixed.
Home borrowers who over-extended themselves with a large loan are likely to face grave problems should this scenario happen.
The second scenario presented by MAS includes home buyers that could incur losses from plummeting prices of homes due to a possible market correction if the growth of the economy proves weaker than anticipated.
There are several key factors to consider when taking out a home loan.
First is the issue of its affordability. To ensure practical financial planning, Mr. Dennis Ng, the spokesman for mortgage consultancy portal, www.HousingLoanSG.com, suggests that all property buyers must track their total debt repayment obligations per month.
Such repayments must not go beyond 35 percent of their household income.
Global Creatif Financial, a mortgage consultancy firm, assists its clients to work out the maximum amount that they can borrow. However, there are certain matters that must be considered, including the income of the individual and/or combined with the income of the spouse, derived from property, trade, employment or other income.
According to Annie Lim, managing director of the consultancy firm, such amount will be used to deduct monthly obligations such as bank loans, car loans, mortgage loans, credit card and overdraft bills.
Global Creatif then calculates the amount of cash left after the client’s monthly commitments are fulfilled. Using an applied interest rate and a desired loan term, it computes the lump sum that the client can possibly borrow.
Interest rates movement is another key factor to consider when getting a home loan.
Financial experts generally suppose that rates of home loans will stay low for the next six to twelve months.
Mr. Ng pointed out that the Singapore Inter-bank Offered Rate (Sibor) has a great impact on the home loan interest rates in Singapore. “Sibor is in turn affected by two factors, United States Federal Reserve interest rates and the liquidity in the Singapore banking system. And the US has indicated it is likely to keep interest rates low for the time being,” he explained.
It is, however, possible that the US Federal Reserve will increase interest rates if the economy in the United States recovers. If that happens, Singapore is likely to follow the trend.
Fixed or variable home loan packages are also key factors to take into account before acquiring a home loan.
Naturally, the advantage of a fixed package is certainty. An individual will be aware of the amount he/she will be paying in installments for a specified period.
Fixed rate packages are perfect for clients who want peace of mind and certainty, and are not comfortable with a fluctuating interest rate.