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5 Things You Should Watch Out When Applying for a Housing Loan

Congratulations! You’ve just bought your property and looking forward to creating your dream home.

Before all that, there are some financial matters to take care of; namely a housing loan.

Let’s face it – no one is going to pay full cash for a property and taking on a housing loan is a long-term commitment.

In today’s article, we look at some common mistakes made by homebuyers (especially if you're a first-time buyer) when taking up a housing loan.

1. Affordability

The Singapore Government has warned homebuyers to think carefully about buying properties as interest rates increase in tandem with those in the US, potentially boosting debt servicing costs.

For first time home buyers, it is paramount to buy a property within your means or risk having your monthly cash flows stretched beyond your limits.

Sure, we all want to live in a penthouse in the prestigious districts 9, 10 and 11 but is that really realistic?

Over-stretching your monthly cash flow means having less for the other important things in life – family, kids’ education etc. Being over-stretched would also make you financially vulnerable.

In the current COVID-19 situation, any unfortunate event (like losing your job) may result in your inability to service the monthly instalments and that would have serious implications.

2. Credit report

You may ask – what is a credit report?

Your credit report is a record of your credit payment history compiled from different credit providers.

All banks/lenders will check your credit file to assess your creditworthiness.

Source: Credit Bureau Singapore

This ensures that you have a good repayment history and no defaulting of payments. This will make it easier for you to obtain credit and qualify for loans.

Your credit report also helps credit providers to make faster and more objective lending decisions.

3. Interest rates/tenure

Buying a home is a long term commitment and housing loans are major financial obligations.

We all want the best deals, the lowest interest rates, the minimum monthly repayment and the longest possible tenure.

But is this possible? The answer is NO.

Keep in mind, the banks/lenders are in the business of making a profit, so, you have to study the loan packages carefully.

Some banks/lenders offer the lowest upfront interest rates for the first three years.

But from then on, the interest rates will be adjusted to a much higher rate and you could end up paying more than other packages.

You also have to look at the terms and conditions (T&Cs) carefully to prevent paying exorbitant penalties in the event of early redemption and such.

Opting for longer loan tenure will result in paying interest over a longer period and you could end up paying much more than the original loan amount.

4. Not thinking long-term

One of the most common mistakes is not planning for the long run.

You may be a happily married couple right now with no plans to start a family. But what about 5 or 10 years later?

No one can see into the future and I’ll bet no one saw the current pandemic happening.

The current record low-interest rate climate will not last forever.

Remember the old saying – What goes up must come and vice versa.

You may be comfortable with the monthly repayment now for a large loan amount at a low-interest rate, but what happens if the interest rate goes up by 5%? Would you still be comfortable paying the higher instalment?

5. Due diligence

Lastly, in everything we do in life, always do your due diligence.

It is especially important for long term commitments like housing loans and purchasing big-ticket items like property.

When taking a housing loan, study the packages carefully. Do not just rely on recommendations as everyone’s situation is different and something that is suitable for them may not be suitable for you.

Study the fees and admin charges applicable and also the T&Cs to avoid hefty penalties!

Have A Question? Feel Free To Comment Below.

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