Ways to Save (1) - The Right Loan, or Refinance

There are more than 100 loan packages out there in the market. Which is the most suitable package for the property buyer/owner? Many a times, property buyers are ignorant of their options or overly rely on a property agent that claims to know the best bank. The hidden agenda, best bank can also means best referral fees they may get. If a Property Agent claims to know which is the best loans, Mortgage Consultants will know properties as well as these agents.

True or Lies? If those claims are true, we won't need lawyers or doctors anymore as we are just as good as they are isn't it?

The Right Package
There are more to packages than lowest rates. Lowest rates may not necessarily means best package. There are a few considerations before a Mortgaage Consultant recommends a series of packages that suits the borrower. A bank may have the lowest interest rates for one type of package, but does not means they have the lowest rates for another type of package. Most suitable package is dependant on the borrower's needs more than just rates.

There are 4 categories of packages. They are:
- Fixed Rates
- Variable Rates
- Combo Package
- Curent Link Account

Each category has it's own set of purpose and each property owners needs are different from another. It is very important to understand the borrower's needs before recommending suitable packages.

New Loan
The government has recently scrapped "Deferred Payment Scheme" for new developments (Building Uncomplete). This leaves property buyers with only "Progressive Payment Scheme", unless they are rich enough to pay in full (but why pay in full when there are a lot more your money could work for you).

For new property buyers, they could check on their financial eligibility before deciding on their purchase. This will take into account their current financial commitments and their income. Be careful not to over stretch.

Refinance Existing Loan
Some property owners perceive that their existing lender offers them the best package. Misconception! Most of the time, promotion packages (usually much more attractive) are offered only to new customers. Existing customers does not qualify for promotional packages. Lenders are more keen in new customers, thus existing customers may end up paying for their 'loyalty'.

Valuation Limit
When one buys a property, they should not based their decision on 5 years plan (I hear this often) to sell the property for a profit and move to a larger property. What if the plan doesn't materialize?

If the property buyer is using funds from their CPF Funds (Ordinary Account) towards the purchase (downpayment) and installments, they need to be aware that the Withdrawal Limit is based on 120% of their purchase price or valuation, whichever is lower (at the time of purchase).

By the time the property owner utilized this 120% limit, remaining installments will need to be paid in cash.

Illustration
- Purchase Price : $500,000
- Loan Amount : $400,000 (80% of PP)
- Interest Rates : 4%

- Loan Tenure : 30 years
- Monthly Installment : $1,910
- Principle & Interest distribution : 30.18% and 69.82%

- Lower Loan Tenure : 20 years
- Monthly Installment : $2,424
- Principle & Interest distribution : 44.99% and 55.01%

Conclusion
The illustration shows how much we are actually paying towards interest (Month 1 of loan) for a longer loan tenure.

A properly sourced package will save you substantial money and problem, while wrong package means you end up paying for it.

Relying on property agent for your loan can have undesirable consequence. Do not be a victim of their claims, and pay heavily later.