Five Things You Need Before Applying for Mortgages in Canada

Getting ready to buy your own home is a rewarding process. Soon, you will have the comfort that investment in your own piece of real estate will provide.

However, a less comforting part of the process is applying for mortgage loans. The application process is full of stress about how you will afford your mortgage, if you will get approved, and if you are going with the right lender. You can get preapproved, so you know up-front what you are eligible for, but preapproval requires a lot of paperwork.

Putting your paperwork together requires some time, but it will make the rest of the process much easier. Here are the documents you will need.

1. Proof of Identification

The first step is providing proof of identification to your mortgage broker or lender. The entity lending you money wants to know that you are exactly who you say you are and not someone attempting to commit fraud.

Any government-issued ID will help with proof of identification. However, it needs to have your current address on it, so make sure all of your address information is up to date. You will also need to provide your SIN number.

2. Proof of Employment and Income

The next important step in the mortgage process is proving to the lender that you are employed. Mortgage loans are investments by lenders in you, so they want reassurance that you will be able to pay that money back. The most reliable proof is proof of employment.

You have to prove that you are employed at a reliably paying job, preferably one where you have been for a year or two and that your income is enough to afford the mortgage. Documents that fit in this category are pay stubs, tax forms such as a T1 or T4, or even a letter of employment. If you have none of these documents because you are self-employed, you will need to submit detailed proof of income going back several years.

3. Information About Other Debts

When mortgage lenders agree to give you a loan, they want to know that you don’t have too many other debts that will get in the way of your ability to pay your mortgage. If you have regular car loans or student loan payments but can still afford a mortgage, that won’t affect your chances, but you will need to share information about them.

Mortgage lenders will also look at your credit score.

4. Proof That You Can Afford the Down Payment

Besides paying your mortgage, there are other expenses involved in buying a house, such as the down payment and closing costs. You may be able to afford a monthly mortgage payment, but banks want to know if you have the savings to afford a down payment as well.

You can prove that you have the money for a down payment by showing statements from savings accounts or investment accounts or proof that you have sold your existing house and will use that money for a down payment. If this is your first time buying a house in Canada, you can apply for the RRSP Home Buyer’s Plan and use that as proof of down payment.

5. Information About the Property

Finally, your mortgage lender wants to know the details of the property you will be buying to know the value. Documents include the real estate listing and accepted purchase and sale agreement.

Putting together the relevant documents for applying for a mortgage in Canada is difficult, but keep these categories in mind and start gathering paperwork today.



Home Loans – The Financial Tool to a better Living

A loan is a financial tool for getting the required monetary support to fulfil your immediate or a specific need that you don’t have the means/financial capability to do at the moment. A loan provides you with the ability to go about fulfilling your need without having to worry about the financial stress on your savings, as it is the bank that provides you with the required finances in lieu of collateral.

The loan agreement requires consideration/collateral to be approved in lieu of which the person seeking loan receives financial assistance and has to promise to pay back the loan within a stipulated period of time at a fixed interest rate or the bank will confiscate the collateral to retrieve the loaned amount.

Home Loans

Home loans refer to the loans taken for buying a house, flat or dwelling of any kind to be used as a place of residence. Home loans are one of the most popular types of loans in the world due to the sky high and still rising prices of real estate and homes. Real estate is one of the most expensive investments and in the current economy, the dream of owning your own home or building your own house requires significant financial resources which can put a lot of strain on your finances and savings.

How does a home loan work?

When you’re applying for a home loan, you’re required to use the home you’re going to buy as a collateral, i.e. the bank will have the possession of the papers of the house and will have the right to confiscate the house and sell it to recover the loan if you fail to repay the loan or are unable to pay it back.

If you already own a plot of land, the papers of ownership of the land are required to be used as collateral for getting a home loan. In a situation where you are unable to repay the loan, the bank will have the legal right to evict you from the property and sell the land to settle the loan.

Home loans are the easiest way to buy or build your dream home and the banks are more than happy to help. A home loan can be pre approved by the bank and once you have obtained the papers of the property, the papers can be submitted as collateral to get the bank to release the loan amount which can be then used to proceed with the purchase of the house.

There are many such websites of its kind in the world where you can compare loans from different banks online and customize them according to your personal details and find the one that suits your needs the best. They allow to you to buy home loans online at the lowest interest rates that you can choose from across all banks.


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.



Bank Loan and HDB Loan: Which Has More Advantage?

HDB Singapore

For any potential home buyer, home loans should be a serious business. Pick the wrong kind and it can cause a cascade of unfortunate events, including being trapped in a huge debt and even losing your home.

But between a bank and an HDB loan, which one is better? Let’s compare them:

How much can you borrow?

Under the HDB loan, you can borrow up to 90% of the purchase price or the market value, whichever is lower.

Banks, on the other hand, can provide you with up to 80% Loan to Value (LTV) of the property. This the ratio of the loan quantum to the property’s appraised value.

Take note, though, that both HDB loans and bank loans cannot guarantee the full LTV. Simply stated, it can be lower than 80% or 90%. This means that you have to use your own money to pay off the rest of the mortgage or consider other bank loans.

Taking out a personal loan to cover the rest is an option, but this might affect your debt servicing ratio. Always compare to find the best personal loans.

How much is the down payment?

HDB loans would require 10% down payment, which may be fully covered by your CPF savings. Banks would need 20%, 5% of which should be in cash as only 15% can be absorbed by the CPF. Regardless of which loan you choose, though, repayments may be made through the CPF.

How do they calculate the interest rate?

One of the biggest differences between HDB loan and bank loans is in the way they determine the interest rate. For a home buyer, you need to learn this as it’s the basis for the amount you pay on top of your principal loan.

The HDB loan is pegged at 0.1% above the CPF Ordinary Account (OA) rate. Do note that the CPF rate is reviewed quarterly, so the rate may still change, although it is quite consistent.

Banks can offer either a fixed or a variable rate, although the fixed rate is not perpetual: it’s fixed for only a few years, say, three to five years. Then the rate becomes variable.

Either way, banks have three possible bases for computing their interest rates: SIBOR Singapore Interbank Offered Rate (SIBOR), Swap-off Rate (SOR), and Internal Bank Rate (IBR). On top of that, the bank adds a spread, which is the bank’s charges. As an example, the SIBOR rate (we’ll use this since it’s the most preferred bank rate) may be 1.1% and the spread is 0.9%, which means the overall interest rate is 2%.

Banks express the interest as 0.5% + 3-month SIBOR, which means the rate is revised every three months.

Although banks can offer similar home loan packages, they can still differ on the interest rate alone. Thus, to make sure that you can make the right decision about that, speak to a mortgage broker.  

Over the last few years, homeowners with bank loans have been enjoying lower interest rates, but that’s due to quantitative easing (QE), which somehow repressed the bank’s interest rates. But now that it’s over, the rates may significantly change.

Hopefully, with this article, you can make a much better choice whether to get an HDB loan or a bank loan.

(This article is brought to you by



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.