How to Choose A Housing Loan Package ?

Before signing on the “dotted line”…

You need to do this before you sign it. I know that many people are just

thinking "Sign this and I get the house!" or "Sign this and I get the money!"

but a lot of loan providers - often the very biggest - scam their customers by

talking about one loan with very favorable characteristics, and when it comes

time to sign they actually deliver a completely different loan with a prepayment

penalty, burdensome and unfavorable arbitration requirements (I've seen stuff

that amounted to "the bank chooses the arbitrator"), and any number of other

unfavorable terms, not to mention having a higher rate and three times the cost,

and being floating at the Financial Institution’s own board rates as opposed to

the fixed they told you about.



8 Points to note when signing Housing Loan letter of offer issued by the

financial institutions.

1) Are details such as Property Address of Title held, Names of Mortgagors &

Borrowers, Loan Quantum, Loan Tenor, and last but not least, the Interest

Package correct?



2) Is your loan interest computed on Monthly Rest of Daily Rest?

The interest for housing loan is calculated monthly based on the principal

outstanding at the prevailing interest rate for the actual number of days of the

month.

When the computation is on “Monthly Rest”, it means the principal adopted

is the loan outstanding as at the last day of the previous month, and the “Daily

Rest” is using the latest principal outstanding of the current month. Therefore,

the difference between these two methods is one month installment and of course,

the interest based on “Daily Rest” method is cheaper than “Monthly Rest”. You

can find it in the interest rate clause of the letter of offer.



3) Is the loan interest computed on 360 or 365 days?

In Singapore, most of the Financial Institutions use 365 days.

However, some of the Financial Institutions are computing the housing loan

interest based on either 360 days or the actual numbers of day in the year

(365/366). It’s fairer and cheaper to adopt the actual numbers of days in a

year. You can find this information in the Interest Clause of Standard Terms &

Conditions attached to letter of offer.

Please refer to the formula for the computation of the housing loan interest:

Monthly Interest = Principal x Interest Rate x No of days if the month

_____________________________________________________

360 or 365 or 366



4) Commencement of Monthly Installment:

For private property loans, the monthly installment will commence from the 1st

day of the month following the disbursement if the loan is disbursed within 1st

15 days of the current month. Else the monthly installment will start on the 1st

day of the following month.

For HDB loans, the commencement of monthly installment usually starts on the

15th of the month. If the loan is disbursed within the 1st 15 days of the month,

the monthly installment will start on the 15th day of the next month; else it

will start on the 15th day of the month following month.

The cut-off date may vary from bank to bank, so you are advised to review the

letter of offer from the respective Financial Institution accordingly.



5) Cancellation fee:

After signing the letter of offer, borrowers are subject to a cancellation fee

on the undisbursed loan amount for whatever reason. The fee imposed varies from

0.50% to 1.50% depending on the Financial Institution in question. Borrowers are

advised to ascertain the exact loan amount required before committing on the

letter of offer.



6) Prepayment/Breakage Fee:

Borrowers need to understand this clause carefully as they may subject

themselves to prepayment fee unknowingly.

Currently, for loan packages where the interest rates of the SOR are reviewed

monthly, quarterly, half yearly or yearly depending on preference, the partial

capital repayment date will have to fall on the rate review date in order to be

exempt from any fee.

Whereas loan packages pegged to SIBOR does not require such respective

commitment periods.

Other restrictions include ensuring outstanding loan amount doesn’t fall below a

stated percentage or figure post capital repayment for specified period. Failure

to do so will incur a further penalty. Please check with the Financial

Institution prior to effecting any partial capital repayment.



7) Clawback of subsidies within the reimbursement period:

Legal Subsidy, valuation subsidy and fire insurance are now known to be standard

features of housing loan packages granted by most Financial Institutions. I

Due to competition, some Financial Institutions offer penalty subsidies to

refinance customers from their existing Bank to them. Such penalty subsidies are

usually also subjected to clawback, be it full or pro-rated.

If the loan is fully repaid or redeemed within 3 years from the date of 1st

disbursement of loan, borrowers are required to refund some or all the subsidy

given at the outset depending on the conditions stated in the letter of offer.

Some Financial Institutions might impose a longer reimbursement period, such as

5 years, 7 years or even 10 years!

Please clarify with the Financial Institution before making a full redemption or

refinancing upon expiry of the 1- or 2-year lock in period to avoid unexpected

surprises.

Letter of offers are documents prepared with the advice of lawyers, hence,

borrowers are advised to seek legal opinion from lawyers should they be unsure

about terms stated prior to signing on the dotted line.



8) Default Terms:

Although no customer sign up a property loan thinking of defaulting, however it

is still important to know the interests & late charges imposed by the

respective Financial Institution and the terms &/or cut off date, if any, to

which fee will be imposed.

Most Financial Institutions in Singapore charges a flat default fee PLUS an

interest (calculated on a daily basis, on the number of days the payment is

late).

The default fee &/or interest charged varies from the respective Financial

Institutions.

For any property loan matter or a detailed loan analysis, please contact our

Property Loan Specialist for an unbiased and independent advice