Applying for a mortgage can seem as complicated as buying the home itself. Mortgage rates and the myriad of day-to-day changes in the property market can appear just as dynamic and competitive. So, what’s true and what’s not when it comes to interest rates Singapore, especially in Singapore? We take a look at some of the most common myths and misconceptions and see if we can shed a little light to help you along your way.
Myth 1: The Interest Rate Reflects Its Quality
Fact: The interest rate does not reflect the overall quality of a home loan. There are many other aspects of a loan to consider. A higher loan rate might come with other features—like benefits and terms—that make it a better loan overall. You should always look at the whole package. And when you do, look at the package over time. The rate has less impact on the rate of return over 30 years than one might think.
Myth 2: Fixed-Rate Are Always Better Than Floating-Rate
Fact: Fixed-rate loans provide a stable interest rate throughout the term of the loan, which is advantageous when interest rates are going up. But when market conditions are favourable, they offer only “higher” rates. Assembleia loans, which are tied to market benchmarks like SIBOR and SORA, offer lower rates in favourable market conditions.
Myth 3: The Only Thing That Affects Your Rate Is Your Credit Score
Fact: Even though a favourable credit score is critical for obtaining a loan with a good rate, many other factors are at play when a lender makes a decision. They also look at your income, debt-to-income ratio, loan-to-value ratio, and the pension-type property you want to buy. Everything else being equal, a good score with favourable looks in all these areas can make the difference when signing a check or not.
Myth 4: Home Mortgage Promotions Are Just Marketing Hype
Fact: Savings of several dollars, along with additional benefits, can come your way if you properly use the home loan promotion offered by a bank to your advantage. Reduced interest rates, decreased EMI amounts, and cashback offers have been part of home loan promotions in recent years. But as with all promotions, you must definitely read the fine print. You should also do a pre-check on the home loan provider to make sure they are trustworthy and the terms and conditions are indeed beneficial.
Myth 5: A Large Down Payment Guarantees a Good Rate
Fact: While it can help, and while we can rightly say that mortgage mathematics assures us a larger down payment may lead to a better rate and a lower overall amount, it’s not a straightforward path—from down payment to result—that rules out other possible configurations. The Singaporean mortgage market doesn’t penalise you with a high interest rate if you pay a standard (or even slightly below standard) down payment when you buy your new home.
Myth 6: All Banks Offer the Same Rates
Fact: Banks price their home loan products differently, based on their individual strategies and the assessments they make regarding the risk of lending. For this reason, it’s a good idea to apply to several different banks to see which offers the most favourable product terms. If using a mortgage comparison tool, remember that the best rate isn’t the only thing to consider when assessing which bank offers the best home loan product.
Myth 7: It’s Always a Good Idea to Refinance
Fact: When refinancing results in lower interest rates or better loan terms, it can be a smart and savvy move. When it doesn’t, and when it incurs costs—like administrative fees, legal charges, and so on—it’s not beneficial. The point is this: You have to think of the “downside” of refinancing, not just of the “upside.” By doing that, you might discover that refinancing may be of no significant advantage to you at all.
Myth 8: Always Accept the Palatable Prepayment Penalty on Loans
Fact: Some lenders still impose prepayment penalties on their loans, which can make it hard to pay off a loan early without incurring some extra costs. However, many lenders today offer loans that do not have prepayment penalties, in part because the CFPB has made such choices much clearer to consumers. If you plan to pay off your instalment loan early (which is usually a good thing), be sure to ask about prepayment terms—those together with the loan’s interest rate can tell you a lot about the cost of the loan.
Eliminating these frequent misconceptions about Singapore’s home loan rates can allow you to make more informed choices. When you grasp the reality as well as the whole picture of a loan, you can more adeptly chart your course through the property market’s often bewildering maze and find a home loan that meets your real needs and financial goals—for now and in the future. And always remember: If you want to affect the best outcome for your particular situation, research and seek professional advice when needed to ensure you know and understand all the angles.
