Types of Housing Loans
1. Fixed Rate Mortgages
Your home loan plan is fixed for a certain period of time, from 1-5 years. Current financing interest rates packages hover between 1 percent plus depending on the timeline that you fixed your home loan / mortgages. Fixed rate packages offers you the interest rate certainty that you know you would be paying this fixed amount of monthly installment every month regardless of the interest rate fluctuations and movements and offers you predictability and stability in monthly installment with drawbacks of lesser flexibility in partial or full redemption of your home loan / mortgages as you would be typically be locked in for the tenor that your interest rates are fixed.
In recent years, some banks have allowed for the wavier of full redemption penalties within the lock in period if the redemption is due to the sale of the property.
2. Sibor Pegged Mortgages
SIBOR stands for the Singapore Inter-bank Borrowing Offer Rate and is a transparent inter-bank borrowing rate that allows consumers to know exactly what the inter-bank market interest rate is and the inter-bank cost of borrowing. The rate is publicly available in Business Times, Teletext and the web.
The Sibor rate comes in tenor terms of 1/3/6/12 months with most banks in Singapore offering home loan / mortgages in either the 1 month or 3 months tenor. A longer term tenor typically comes with a higher interest rate. Some banks may allow for free switching between the varying tenors of Sibor while some would impose a small administrative fee to cover its administrative cost. The banks typically charged a certain spread above the prevailing Sibor Rate for the Home loan /mortgage financing plan, example SIbor + 1%.
3. SOR Pegged Mortgages
SOR stands for Swap Offer Rate. I’m going to spare you the financial jargon or theoretical textbook definition for it.
There might be certain funding advantages given the current United Sates Federal Reserve FED Fund Rate is at between 0 – 0.25%, however given that the funding is USD based, volatility in the foreign exchange (FX) market can play a part in influencing the movement of the SOR rate. In comparison to the Singapore Interbank Borrowing Offer Rate (SIBOR) which is SGD funding, the foreign exchange (FX) will have minimal impact on it. The banks typically charged a certain spread above the prevailing SOR Rate for the Home loan /mortgage financing plan, example SOR + 1%.
4. Board Rate Mortgages
Comparative to Sibor or SOR, it offers lesser transparency as to how banks arrive at the concluding board rate figure and pricing for your home loan / mortgages. Given that it is less transparent, some banks have abolished the Board Rate pegged practice while some have adopted a standard universal Board Rate system for greater transparency. In the recent years, we have seen the Board Rate pegged variable packages to be reasonably stable and may offer consumers an extra value proposition for consideration on their mortgage / home loan financing.
5. Combination of Variable and Fixed Rate Mortgages
Some banks from time to time may offer a unique combination fixed rate plan with a variable Sibor/SOR/Board Rate pegged. Let’s use an example for illustration. Assuming you have a $1, 000, 000 loan. 60% of your mortgage / home loan plan would be pegged to the fixed rate while the remaining 40% would be pegged to a variable (Sibor/SOR/Board rate).
6. Combination Sibor and SOR Pegged Mortgages
This offers a unique proposition of using both Sibor and SOR together. Some banks allow for the free switching between Sibor and Sor while some takes the average value of Sibor and SOR + a certain spread for your mortgage / home loan plan.
7. Deposit Matching Interest Offset Mortgages
Good for customers with excess liquidity. You take up a mortgage / home loan plan with a deposit account offering deposit interest rate similar to your home loan financing cost. The interest offset is typically up to 70% of the financing cost. Offers good value proposition for customers with spare liquidity with flexibility for cash flow.
8. HDB Housing Loan Mortgages
Offered by the statutory Housing Development Board for the financing of HDB properties. Current HDB Home loan financing is at 2.6% and is higher than mortgage plans offered by the banks in Singapore but may offer a higher financing quantum than banks. To reduce your HDB Home/Housing Loan financing cost, kindly give us a call for a private and confidential discussion.
9. Fixed Deposit Home Loan Rate (FHR) Mortgages
The first of its kind in Singapore that pegged the mortgage home loan rate to the bank’s 12 and 24 months mean average of the Singapore fixed deposit rate. The fixed deposit reference rate used is based on the fixed deposit interest rate given for fixed deposit placement of between $1000 – $9999. The bank nevertheless reserve the right to amend the basis of computing the interest reference mechanism.
10. Interest Only Mortgages
Service only the interest on the mortgage. Not allowed anymore for residential properties.
11. Partial Mortgage with Interest Mortgages
A normal mortgage loan consist of principal with interest. A partial interest servicing home loan consist of only partial principal repayment with interest. The reduction in the principal helps reduce an applicant’s monthly loan repayment and improves his cash flow.
12. Multi Currency Mortgages
Commonly only available for international and overseas property loans, it offers the borrower the option to switch between the base currency of the asset and the local SGD dollars.
Common Problems Faced During Mortgage Lending
Any kind of discrimination in mortgage lending is prohibited by the law. It is unlawful to engage in the following practices based on any discrimination factor:
- Refuse to make a mortgage loan or refinance a mortgage loan;
- Refuse to provide information regarding loans;
- Impose different terms or conditions on a loan, such as different interest rates, points, or fees;
- Discriminate in appraising property;
- Refuse to purchase a loan or set different terms or conditions for purchasing a loan; and
- Discriminate in providing other financial assistance for purchasing, constructing, improving, repairing, or maintaining a dwelling or other financial assistance secured by residential real estate.
Filing a Complaint
If you have experienced any one of the above actions, you may be the victim of discrimination. Recognizing the signs of lending discrimination is the first step in filing a complaint. HUD will investigate your complaint and you won’t have to bear any of its costs.
Maternity leave Discrimination
Since 2010, HUD has seen a steady stream of complaints alleging discrimination against borrowers who are on maternity leave. In these cases, lenders allegedly denied or delayed loans to working women because they were pregnant or on maternity leave. Sometimes, a lender allegedly treated women differently by requiring women to end their maternity leave and return to work in order to be approved for a loan.
In recent years, the Department has seen a number of complaints alleging discrimination against mortgage applicants who receive disability income. In such cases, lenders allegedly treated individuals with disabilities less favorably than individuals without disabilities, such as by applying more invasive and burdensome income documentation requirements. Read an example here.