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Navigating complex housing loans

By Koh Hui Theng

http://business.asiaone.com/Business/My%2BMoney/Building%2BYour%2BNest%2BEgg/Credit%2BAnd%2BLoans/Story/A1Story20091221-187190.html

FOR many of us, that dream home is more than just a roof over our heads – it is perhaps the single biggest investment we will make in our lifetime.

Related stories: And given the variety of housing- loan options on the market, finding the mortgage that best fits one’s financial commitments can be challenging.

Just ask civil servant Chris Yeo, 29. Now renting an apartment with his 24-year-old wife, who works in human resources, the couple hope to buy a place next year.

Mr Yeo is prepared to pay off his mortgage over 30 years, but is bewildered by the complexity of loan packages available.

‘The low interest rates have sparked a price war between banks competing to offer the best home-loan rates. My friends say that I should shop around instead of going with the 2.6 per cent Housing Board loan rate.

‘But what will happen when interest rates go up again? I don’t want to be stuck paying sky-high interest,’ he reasoned.

To help Mr Yeo and others like him, my paper asked three experts – mortgage consultancy HousingLoanSG.com founder Dennis Ng; OCBC Bank head of consumer secured lending Phang Lah Hwa; and head of United Overseas Bank loans division Chia Siew Cheng – to explain how loan packages work.

What are the pros and cons of taking up a loan with a fixed, floating or pegged rate?

MR CHIA: A fixed-rate loan offers interest rates which are fixed and guaranteed for the first few years, allowing customers to manage their finances with certainty, but security comes at a premium.

The customer may be tied to a higher fixed rate while the cost of funds remains low. Partial repayments are also restricted.

A floating rate (set at a bank’s discretion) gives customers the flexibility to make partial repayments at no additional cost. They do not have to time partial repayment at the swap-offer rate (SOR) or Singapore Interbank Offered Rate (Sibor)-pegged re-pricing date.

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