If you are a first-time home-buyer, you might not understand all the technical jargons about home loans.  Below are explanations of some of the key terms for your reference.

a) Quantum of Financing refers to the ratio of the loan amount to the value of the property being financed.

b) Types of Loan Repayments

i) Full Instalment Repayment means that the instalments cover both principal and interest payable.

ii) Interest-Only Repayment covers only the interest portion of the loan.  The principal loan remains unpaid during this period.  Mortgage packages which offer interest-only repayment will usually have to revert to full instalment repayment at some point, so that the principal loan is repaid. 

c) Fees and Charges

i) Cancellation Fee: This is a fee charged when a loan facility is cancelled by the customer after acceptance of the offer. This is to cover the administrative costs involved in processing the loan.

ii) Redemption Fee:  This is a fee charged if a loan is fully repaid within a pre-determined period of time, generally in the initial years and may range from 1 to 5 years depending on the package offered.

iii) Prepayment Fee: This is a fee charged when any lump sum prepayment is made to the loan (generally also in the initial years).

iv) Late Fees: This is a fee charged if the monthly loan instalment is not paid when due. This is also commonly termed as a 'Default Fee'.

Banks generally offer Fixed Rate packages, Variable Rate packages as well as Market-Pegged Rate Packages.  It is important that you make an effort to understand the features and considerations for the different packages, so that you can select something that best meet your needs.

a) Fixed Rate Packages
These packages have interest rates that are fixed for the initial years of the loan and are generally higher than variable rate packages because of the protection against interest rate hikes during the fixed interest rate period.  Such packages are suitable for people who prefer certainty in their monthly loan instalments.

b) Variable Rate Packages
The rates are pegged to a Bank’s reference rate, which is influenced by prevailing market conditions and Banks can change the reference rates at their sole discretion.  Such packages are suitable for people who want their home loan rates to be adjusted with prevailing market conditions, but do not want the volatility of market-pegged rates packages.

c) Market-Pegged Rate Packages (SIBOR or SOR pegged)
The rates are either pegged to market SIBOR (Singapore Interbank Borrowing Offer Rate) or SOR (Swap Offer Rate) depending on the packages offered.  Such packages are suitable for people who prefer the transparency of market-pegged rates and do not mind its volatility.

Banks also offer short term facilities, such as bridging loans and short term loans, to help home upgraders to meet their temporary cashflow needs.  This will allow them to commit to buying a new property, before the receipt of the proceeds from the sale of their existing property. 

a) Bridging Loan
Banks offer up to 10% of the purchase price or valuation, whichever is lower, to meet the initial downpayment for a property purchase. Generally you will only need to service interest on the Bridging Loan. Bridging loans are for period of up to 6 months only.

b) Short Term Loan
Short Term Loans are offered to bridge the future cash &/or CPF monies expected from the sale proceeds of the existing property. Generally you will need to only service interest on the Short Term Loan as full repayment will be through future sales proceeds. Short Term Loan are also for period of up to 6 months only.

Construction loans are offered to individuals who want to build their own private residential property on a piece of empty land or redevelop an existing landed property.  During the construction, you only service the interest payable for the construction loan.  Upon obtaining Temporary Occupation Permit for the reconstructed property, the outstanding construction loan may be converted to a housing loan, term loan or Overdraft facility, depending on your requirements.

If you already have an existing property and home loan, refinancing may be what you are thinking of.  While the benefit of a new loan with lower interest rate is obvious, you should also consider the following when you decide to refinance:

a) Penalty Charges
You should first find out whether there are still any penalty charges for your existing mortgage.  This can either be in the form of redemption fees or clawback for any subsidies that you might have received when you first took up the loan.  If the penalty charges amount to a large sum, it may be more difficult to refinance your loan. 

b) Lower Monthly Payment
A lower interest rate and loan payment will result in greater monthly cash flow.  However if you have no plans to invest that extra cash elsewhere for a better rate of return, you may consider shortening the loan tenor by maintaining the same repayment amount.  

c) Cash-in-Hand
If you have investment opportunities with higher rates of return, or other cashflow needs, it may also be possible for you to obtain another term loan, secured by your same property. 

Whatever your needs, you can always talk to one of our OCBC Mortgage Specialists to find out how we can help you.