Home is not only a luxury but a dream and necessity of every individual. Home to an individual is like salt in their meal. Life is like your meal, relationships are like the spices in it, but without salt everything is incomplete.
In our fast and hustle life, it becomes difficult for us to save the required amount of money for buying our dream home, but like every difficult situation has an alternative, loans are alternative to this.
Let us take a tour to know about mortgage home loans.
A mortgage is a loan in which the lender provides money to the borrower who is in need to buy a home or does not want to pay the entire purchase price upfront, and in exchange, the lender takes the property of the borrower as the collateral.
Purpose of Mortgage Loans
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Mortgage loans are used for purchasing homes and other types of real estate.
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Mortgage loans not only include loans for the purchase of the property but it is also for those who want to do the maintenance of their property.
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Many a time, investors mortgage their properties, although they have the amount for the entire purchase so that they can use their funds for investment purposes.
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Mortgages allow you to buy your dream home without burdening your shoulders with its entire purchase price.
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It allows you to purchase your home just by putting only a small amount as a down payment.
Types of Mortgage Loans
Everything in this world 🌍 has variation within it, whether it is about soil, atmosphere, weather, or mortgage loans.
So, basically, there are two main categories of mortgage loans:
Fixed-rate Mortgage:
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The interest rate for the whole term of the loan is fixed.
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The interest rates are independent of the rise and fall of the market rates.
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The monthly payment of mortgages remains the same throughout the period of the loan.
Adjustable-rate Mortgage (ARM):
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The interest rate keeps on fluctuating till the repayment of the entire loan.
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In the initial few years, the interest rate is fixed, after this, the interest rate keeps on fluctuating periodically.
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The periodical fluctuation of the interest rate is due to the rise and fall of the market rate.
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The rise and fall of the interest rate for a mortgage make it affordable in its initial stage but may make it less affordable in the long run if the rate substantially keeps on rising.
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However, ARM has its caps on the rise of interest rates, it can only be raised up to an extent.
The Process for Mortgage Loan
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You have to apply for mortgage lenders.
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To ensure your financial status and your ability to repay the loan, the lender will ask you for shreds of evidence.
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The evidence may include bank and investment statements, proof of current employment, and recent notice of assessment.
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Generally, lenders go through your credit checks.
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Once your application is approved, then the lender will grant you a certain amount of money at a particular rate.
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You have to repay the loan within the specified years, and then the property will be all yours.
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The lender can foreclose on your property if are unable to repay the loan.
Lenders of Mortgage
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At once, saving and loan associations, credit unions, and banks were the only sources of the mortgages.
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However, currently, the mortgage market has a significant share of non-bank lenders, such as Better.com, LoanDepot, Rocket Mortgage, and SoFi.
Housing & Development Board (HDB)
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Housing & Development Board has the responsibility of public housing in Singapore, it is a board of the Ministry of National Development.
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HBD plans to manage and maintains the estates it owns by upgrading or constructing the buildings and clearing slums.
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HDB also provides mortgage home loans to the people.
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It provides loans at an interest rate pegged at 0.1% concession above the CPF Ordinary Account interest rate, but this is only for the buyers of HBD property.
Eligibility Criteria
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To take a mortgage from HBD, the first thing to do is apply for the HDB Loan Eligibility (HLE) letter. HLE remains valid for six months from the date of its issue.
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HDB does not provide any financing loans for the purchase of a short lease.
Documents Required
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If the applicant is employed and has a monthly CPF contribution then he/she has to submit recent 3 months payslips and the latest 15-month CPF contribution history.
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If the applicant has no CPF contribution then submission requires six-plus months’ payslips and bank statements.
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If the applicant is a full-aged student between the age of 18 to 62 years, just need to submit a valid Student Pass.
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If the applicant is working overseas, the additional documents will be an employment pass, work permit, and overseas income tax return.
Loans from the Banks
Taking loans from banks is more about research because of the competition between banks.
Banks provide two types of loans:
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Fixed-rates Loans: Interest rates will be fixed for the first few years and will not be affected even with the fall of the market and after that it becomes variable.
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Floating or Variable Rate Loans: Interest rates vary according to the reference rate of Singapore Interbank Offered Rate (SIBOR), Singapore Swap Offered Rate (SOR), or internal board of banks.
Eligibility
Mortgage from banks requires the fulfillment of the following criteria:
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Monthly income of the applicant, to analyze if he/she can pay back or not.
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Verification of minimum and maximum age.
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Status of residency.
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Fulfillment of the rules of the Monetary Authority of Singapore’s property loan and bank’s internal requirements.
Documents Required
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Latest statements from IRAS and CPF board.
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Written declaration for outstanding debt obligations and all sources of income 12 months before applying for home loans.
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NRIC for Singaporeans or PR and Passport for foreigners.
Procedure
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Get an In-Principle Approval (IPA) from the bank.
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Pay the Option to Purchase (OTP) within 30 days of getting the IPA.
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After this, within 21 days make the down payment and get your home loan approved and submitted by the bank.
Conclusion
When you take a loan from the bank or HDB your property acts as collateral until you repay the amount of the loan with interest. The benefits of lender and borrower are assured by doing an eligibility check.
Home loans are filling in the gap from renting to owning your own dream home, shifting from house to home.