In the current interest rates climate where SIBOR and SOR are hovering around their all all-time lows, it is easy to forget SIBOR and SOR have historically been considerably higher than what it is now. This can be especially misleading to first time home buyers who could be aware of these 2 benchmark rates for the first time.
Mortgage loan deals that start with low interest spread can look very attractive. However, do not forget that the interest rate spread for the later and thereafter years can be much more important than interest rates in the first few initial years. This means that although a mortgage loan can appear very tempting with 0.50% spread in the first year, be sure not to neglect looking at the interest spread in the later years. This is because a mortgage loan is very often a long term commitment that property buyers stretch over 20 to 30 years.
Also note that your own calculation for the affordability of the mortgage loan installments will vary from year to year depending on the details of the home loan that you take up. Monthly installments for the first year can be very different from the second year and onwards. So when you make your own financial analysis, do not make the mistake of only taking into consideration of the installments for the first year.
Benchmark pegged home loans will also result in fluctuating interest rates. So you if can just barely afford a mortgage installment, take into consideration that when interest rates rise, your monthly payments are going to go up as well. A lot of young buyers are buying expensive properties because the current low mortgage interest rates allow them to find affordability in servicing a huge loan quantum amount. But if mortgage rates rise, these young buyers may not be able to afford their mortgages if their income levels does not rise as well.
Before you make a commitment to a Singapore mortgage loan, take note of the mortgage rates chargeable in the second year and onwards. the best mortgage rates spread are always in the first year. Calculate the different installment payment over the years and plan you personal financial budget accordingly. Carelessly missing out on the installments amounts after the first year can be detrimental to your personal financial well-being.