Unlock the Mysteries of Mortgage Rates

Mortgage rates are an important factor to consider when buying a home. They can have a significant impact on how much money you will pay in interest and the size of your monthly payments. With mortgage rates constantly changing, it’s important to understand what affects them and how they may change in the future. In this introduction, we’ll take a look at what factors influence mortgage rates and how they may affect your decision-making process when purchasing a bank home in Singapore.

Factors Affecting Mortgage Rates

  • a. Inflation
  • b. Federal Funds Rate
  • c. Economic Activity and Unemployment Rate
  • d. Bond Market Activity
  • e. Credit Availability and Demand for Loans

Mortgage rates are a key factor to consider when deciding whether or not to purchase a home. Although there are many factors that can affect mortgage rates, five main ones tend to have the greatest influence. These include inflation, federal funds rate, economic activity and unemployment rate, bond market activity and credit availability and demand for loans.

Inflation has an important role in determining mortgage rates because it affects the overall cost of living. As prices increase due to inflation, lenders will generally raise their mortgage rates as well in order to offset the extra costs associated with providing loans in an environment of higher prices.

The federal funds rate is another major factor that can affect mortgage rates. This is set by the Federal Reserve Board and it influences how much banks charge borrowers for loans as well as other lending activities such as issuing mortgages. Generally speaking, when this rate goes up so do interest rates on mortgages (and other types of loans).

Economic activity and unemployment rate also play a role in setting mortgage rates since lenders use these figures to assess potential risks associated with providing home finance products such as mortgages.

Types of Mortgage Rates

  • a. Fixed-Rate Mortgages
  • b. Adjustable-Rate Mortgages (ARMs)

Mortgages are a major financial commitment, and with so many different types of mortgages available, it can be difficult to decide which one is right for you. Two of the most common types of mortgages are fixed-rate and adjustable-rate (ARM) mortgages. Understanding the differences between these two mortgage types can help you make an informed decision that best fits your financial goals.

Fixed-Rate Mortgages

A fixed-rate mortgage is a loan with an interest rate that remains the same throughout the life of the loan, no matter how long or short that may be. With this type of mortgage, borrowers know exactly what their monthly payments will be for as long as they carry the loan. This predictability makes it easier to plan and budget for homeownership expenses in addition to other monthly expenses like utilities and groceries. Fixed-rate mortgages often come in 15-, 20-, 25-, or 30-year terms; however, some lenders may offer longer terms as well.

Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage is a loan with an interest rate that changes over time based on certain predetermined criteria such as market conditions or index rates like Treasury Securities or LIBOR indexes. Depending on the lender

Benefits of Lower Mortgage Rates

As homebuyers prepare to enter the real estate market, one factor that is often top of mind is the mortgage rate. Lower mortgage rates can be an attractive incentive for those looking to purchase a home, as they can help make the process more affordable and accessible. In this article, we’ll explore some of the benefits of lower mortgage rates and how they can be beneficial to potential homeowners.

One of the most obvious advantages of lower mortgage rates is that it makes buying a home more affordable. Homebuyers who take advantage of these reduced rates are able to borrow money at a cheaper cost over time, which helps them save on interest payments and allows them to pay off their loan faster. With lower monthly payments, it also becomes easier for potential homeowners to make their dream of owning a house come true without having to stretch their budget too thin or put themselves in financial jeopardy.

Lower mortgage rates also open up possibilities for refinancing existing loans or taking out additional loans against existing property equity. Homeowners who have taken out larger mortgages may find that refinancing at today’s low rates could significantly reduce their overall debt load and monthly payment amount – helping them get back on track with paying off their loan sooner than expected.

Conclusion

Mortgage rates are a key factor to consider when purchasing or refinancing a home. Rates can change drastically in a short amount of time, so it is important to stay informed about current conditions and shop around for the best rate you can find. With careful research and diligence, you can find the right mortgage rate that fits your budget and long-term goals.

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Don’t Make These 5 Mistakes When Applying for a Mortgage

A mortgage represents the most expensive form of credit most people will ever apply for. With house prices well above £200,000 in many locations, taking out a mortgage means taking on a sizeable debt that will take decades to pay off. As such, borrowers have to be very careful about what they do.

The good news about mortgages is that there are plenty of them readily available. The bad news is that it is easy to make costly mistakes. Recognising such mistakes is the first step in avoiding them. The second step is to employ the right strategies that guarantee things work in your favour.

Are you planning to buy a house soon? If so, do not make these five mistakes:

1. Going Directly to a Bank

Banks are the first institutions’ many people think of when it comes time to apply for a mortgage. However, going directly to a bank virtually guarantees not getting the best deal possible. Here’s why: financial institutions only offer a limited number of mortgage deals that are designed purposely with their needs first.

You might go to a bank or building society and discover you only have access to two different mortgage products. What if neither product is right for you? Even worse, how do you know that either of those two deals is really the best you can get? You have no way of knowing because the bank or building society has no incentive to look out for your best interests.

What’s the solution? Avoid banks and use a dependable mortgage brokerage instead. Independent mortgage brokers represent multiple public and private banking institutions as well as third-party lenders. If there is anyone capable of finding you the best mortgage for your circumstances, it is an independent broker.

2. Accepting an Interest-Only Mortgage

Interest-only mortgages may represent a way to get into your dream house without taking on monthly payments you cannot afford, but there’s a catch: paying only interest with your monthly payments means you are not paying down the principal. That is not a problem until you come to the end of the loan at which time a balloon payment is necessary.

If you are taking out a £100,000 mortgage with interest-only payments, are you going to have enough money to pay what you owe on the loan’s maturity date? If not, you are either going to have to take out a new mortgage or sell your house.

3. Obsessing Over Interest Rates

Do not make the mistake of obsessing over interest rates, either. Yes, interest rates are important in determining how much you will pay to borrow. But they are not the only thing to consider. Remember that lenders advertise annual percentage rates (APRs) as opposed to straight interest.

An APR represents the total cost of borrowing over the life of a mortgage. It includes interest, closing costs, application fees, and so forth. It is more important that you concentrate on APR than interest rates alone. Your goal is to get the lowest possible APR on a loan with terms that suit your circumstances.

4. Mortgaging More Than 75%

It has long been understood that home buyers will put down a certain percentage of the purchase price on a home as a deposit. The size of a deposit can vary, but the general rule is to put down 25%. Whatever you do, don’t make the mistake of putting down any less.

A deposit of less than 25% means you are mortgaging more than 75% of the value of the home. Why is this bad? There are several reasons, beginning with the fact that you will end up paying more interest for every pound you borrow. Coming in with a 10% deposit as opposed to 25% means you will be paying a lot more interest.

Mortgaging more than 75% also makes you a higher risk to lenders. That means you will get less favourable rates and terms. Also, note that higher mortgage amounts reduce the number of lenders willing to loan to you. This means you’ll have fewer deals to choose from.

5. Exceeding Your Established Budget

Finally, do yourself a favour and commit to not exceeding your established budget – not even in the slightest. Be prepared that your estate agent might show you houses that are above your budget with the hope of getting you to spend more. Don’t do it.

Exceeding your budget, even by a little bit, could cause serious financial problems down the road. You could stretch yourself so thin that the slightest financial emergency prevents you from making your mortgage payments. Miss a few mortgage payments and you could be in line for repossession.

Also, keep in mind that committing to your budget might mean that you cannot find a house you really like. That’s fine. You are better off waiting until the market improves or you have more money saved. You can never go wrong by not spending money. On the other hand, you can go terribly wrong by spending more than you have.

Now you know what to avoid when it comes time to apply for a mortgage. Good luck in your house search. Hopefully, your estate agent and mortgage broker can work together to get you into the home of your dreams.

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Why It Makes Sense To Choose A Bank Mortgage Loan

Before you purchase your HDB flat, you will be faced with the dilemma of deciding between a HDB loan or a bank mortgage loan. This article demonstrates why it may make sense to choose a bank mortgage loan.

HDB loan is pegged at 0.1% above the interest rate of CPF Ordinary Account. Therefore, the current interest rate on HDB loan is 2.6%. However, you might be able to save on your interest payment if you choose a bank mortgage loan instead. Based on a comparison result from SingSaver, the interest rate on current bank loans varies from 1.62% to 2.28%. Therefore, if you are looking to borrow a loan amount of $200,000, HSBC’s TDMR-Pegged Package is the cheapest at 1.65%. Using this as a comparison, a home owner would need to pay $907 per month by taking a HDB loan, as compared to $814 per month by taking the HSBC home loan ($200,000 mortgage, 25 year repayment at 2.6% versus 1.65%). Therefore, assuming interest rates for both packages stay constant, a home-owner who took up the HSBC TDMR-Pegged package would have saved approximately $28,000 over the loan tenure.

Banks also tend to reward loyal customers for doing more banking activities with them. By taking a bank mortgage loan, the homeowner will be able to earn higher interest rates on their savings deposited. Some common savings accounts are the DBS Multiplier, Standard Chartered Bonus Saver Account and the Maybank SaveUp Account. The additional interest rate given to your savings is on top of the savings that you may have already incurred as a result of paying lower interest expenses on your home loan.

If you are able to apply a savvy refinancing strategy, you will be able to gain some form of control over the interest rates that you pay on your bank mortgage loans. Some of the strategies include

  • Actively comparing home loans on comparison website such as SingSaver to get the best quote,
  • refinance only after lock-in periods are over to avoid paying any penalties,
  • negotiate with the banks for waivers on items such as legal fees etc.

Therefore, by applying a smart refinancing strategy, you can further maximize the savings on your bank mortgage loan.

Do note that a bank mortgage loan has some slight disadvantages as well. A higher downpayment (20% of purchase value) is required, of which at least 5% must be in the form of cash. Therefore, greater cash outlay will be required when choosing a bank mortgage loan over a HDB loan. However, if your budget meets this cash outflow, then this will not be an issue to you. For such group of prospective home-owners, it makes perfect sense for them to choose a bank mortgage loan.

Here’s an exclusive offer from SingSaver: Apply for a home loan and receive $200 cash upon approval. For more details, click here.

 

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Fixed or Floating Rate, Which is Better For Your Home Loan?

Fixed or Floating Rate

Your home is often the biggest purchase you ever made in your life, however that also means landing yourself the biggest debt you ever had.

Properties in Singapore are expensive – be it HDB flats, excecuive condos, or bungalows. It’s not uncommon to have a million dollar price tag onto it. And often, taking up a mortgage loan would also means being in debt for 25, 30 or even 40 years.

Therefore, you want to be careful in choosing the most cost effective lender with the best mortgage terms.

Lenders usually offer many different types of mortgage packages such as interest-only mortgages, off-set mortgages and more. Understanding the difference between a fixed or floating rate loan and which is better is a major financial decision for home buyers.

Fixed Interest Rate

As the name suggests, the interest rate tags to your mortgage is fixed for a specific period and could span 1, 3 or 5 years before reverting to a floating rate once the term is up. For buyers who are risk adverse and want to reduce uncertainties, fixed interest loan is the way to go ask you don’t subject yourself to the fluctuation in interest rates. The cost to it is you have to pay a premium on top of the existing rate (so that lender can hedge the risk of lending you at fixed term) and when interest rate falls, you still pay the same rate when other borrowers on floating terms pay a lower rate.

Floating Interest Rate

On the other hand, floating interest is revised every month or every 3 months.Your repayment amount would therefore change every month. The rate fluctuates according to the Singapore Interbank Offered Rate (SIBOR), Swap Offer Rate (SOR) or the Internal Board Rate (IBR). SIBOR and SOR are more transparent than the IBR which may change according to the company’s discretion, so make your choices wisely. A floating interest rate is more suitable for astute buyers who are able to accurately assess and predict interest rate movement.

Which one to choose?

It’s never easy to decide which rate to choose as it is akin to selecting the correct stock in a market filled with uncertainties. Interest rate movement is volatile and may go up or down without you being prepared for it.

First, ask yourself if you have the financial means to afford a risk in an interest rate hike. If you are someone who just barely scraped through the monthly repayment, you should not be gambling with the interest rate, albeit a lower initial cost. What you need is certainty, so that you would be able to accurately plan and budget your monthly expenses. You don’t want to go around borrowing money to meet other necessary expenses. A peace of mind has a value in itself.

Conversely, if have lots of spare and liquid cash (now and in the future), you may consider a variable SIBOR if you want to take advantage of the low interest rate environment. If you want some degree of certainty, you can consider taking a longer tenor SIBOR rate of up to 12 months, even though it cost a little more than a 1 or 3 month SIBOR.

It is also important to note its correlation with the US’s fed rate and with interest rate hike looming as early as April 2015, it may be wise to time the commencement of your loan.

If you want to reduce your exposure to the US market, you can also consider DBS’s fixed deposit home rate (FHR) which is calculated from the average of DBS 12-month and 24-month interest rate. The FHR is more stable and is not subjected to constant repricing on the daily market movement but that is not to say that it is completely independent of externalities. It is still considered a board rate which DBS has the discretion to adjust the rate to meet their objectives.

There are also other factors to take note of in deciding the right home loan package. One should also consider if there is any prepayment penalty should you decide to pay off your loan early or refinance it in the future. The duration of the loan should also be taken into consideration when deciding whether to take a fixed or floating rate loan. If you take a longer tenor loan, what you need most is stability.

If you are financial savvy, you may want to keep yourself informed of the supply and demand for funds in the interbank market and how it influences interest rate movement.

Lastly, don’t forget to make Janet Yellen your friend.

 

 

 

 

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Millionaire’s poor credit rating has caused him a mortgage

Millionaire's poor credit rating has caused him a mortgage

As reported on Telegraph, A Briton had won a £1M (S$2,031,767) lottery in Euromillions, akin to winning a S$2M Toto in Singapore. A dream that everyone wished for in their entire lifetime. Matt Myles is living the dream.

His plan?

He left his job and went on a bar hopping world tour to countries such as Indonesia and Thailand to Spain, Ibiza and America together with his brother and a few friends.

He splurged on booze and partying costing him up to £72,000, £45,000 on a Porsche and £9,000 on an Omega watch during a seven month stint. Add these up and multiply by 2 and you will get the total amount in Singapore Dollar equivalent – S$252,000 or a quarter of a million dollar spent, without taking into account of hotel and other expenses.

His plan of getting a few houses and earn passive income from rental by leveraging on mortgages came to a naught when mortgage lenders turn him away. Without a job with regular income coupled with poor credit rating amassed from his use of credit during his world tour, he is unable to get financing for his investment in properties.

Without financing options available, he ended up paying for a £150,000 house outright in full.

In Singapore, if you have that amount of credit without a regular income you don’t meet the 60% of Total Debt Servicing Ratio (TDSR) framework. That also mean that you can’t leverage on the low interest rate from your housing loan and end up paying in full, an opportunity cost that you could have generate better returns from other investments.

If you fall in the same category and is in the same boat as Matt’s, you should aim to repair your credit score by paying up your credit before reapplying again. Also consider talking to a mortgage specialist to see if there are other options for you.

And perhaps it’s time for you to get on the payroll?

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