Real estate in Singapore is not cheap and almost everyone buying a property will need to take up a home mortgage. In this article, we will look at several ways to manage your home loan effectively.
1. Research the Market
The first and most important tip is to conduct an extensive research of all home loans available in the market before committing. It is advisable to compare the interest rates and the terms & conditions (T&Cs) of all lenders and banks to find one that is best suited for your situation. There are fixed interest rate packages and floating rate packages. With fixed interest rates, you are protected from sudden and potentially significant increases in monthly mortgage payments if interest rates goes up.
Floating interest rates are usually lower than fixed rates but there is a risk that you may have to pay more if the interest rate goes up. Speak with the different lenders/banks to find out more and pick a package that you are most comfortable with.
2. Avoid Late Payment
It is important to pay the monthly instalment on time to avoid late payment charges and additional interests. Also, it is best to pay off the mortgage amount sooner than later. The faster you can pay off the total loan amount, the more money you save by paying less interest.
If you are badly affected by the economic downturn due to the current pandemic, there could be some relief coming your way. The Monetary Authority of Singapore (MAS) has worked with banks and insurance companies to offer loan deferments to Singaporeans.
3. Know the Difference Between Good Debt & Bad Debt
Good debts are things like your home mortgage because it is an investment that hopefully will appreciate in value in the long term. Bad debts are debts you take on that don’t really add value or unlikely to appreciate in the long run. These are likely to be non-essential items or luxury products that you have no need for or probably unable to afford in the first place.
Ideally, you should pay off these bad type of debts in order to free up your finances for the good type of debts. You should be using the extra cash on hand to pay off the home mortgage or saving up for your retirement.
4. Pay More than the Minimum (If Possible)
You can reduce your mortgage significantly by just paying more than the required minimum monthly instalment. Paying a bit more every month will eventually reduce your mortgage amount and term and ultimately, saving you money by paying less interest. However, it is best to check with your lender/bank to ensure that your home loan package allows you to make extra repayments without incurring additional charges or penalties.
5. Refinance / Reprice
With current interest rates at a record low, it is best to refinance or reprice your mortgage if you have met the required lock-in period. If you had sign up your mortgage package more than 5 years ago, the interest rate you are paying is likely to be higher than the current interest rate. By refinancing your mortgage, you could potentially save hundreds of dollars every month.
Refinancing your mortgage means you are switching your mortgage loan to another lender or bank whereas repricing is switching your mortgage loan with the same bank. Again, it is best to speak with the different lenders/banks to find out their rates and promotions and other T&Cs.
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6. Rent Out Your Property
Another smart way to manage your mortgage is to earn additional income from the property. You can do this simply by renting out rooms that are not used by family members. This is easily done if you have a private property but if your property is a HDB flat, just be sure to follow the HDB guidelines to ensure that you are following the rules.
7. Buy Low Sell High
As in all investments, the golden rule is to buy at low prices and sell when the value goes up. With the current record low interest rates, the cost of owning a property will be much lower when compared to buying a property when interest rates are on the uptick. With Singapore’s strong fundamentals, the value of properties are likely to remain stable with strong potential for growth.
Ultimately, effective mortgage management is closely linked to managing your overall finances. It is always wise to invest only when you are financially stable and able to pay off your monthly expenses to avoid unfortunate situations.
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