If you happen to be on the hunt for a home loan from a foreign bank, chances are you’re either financially unacquainted or overtly financially acquainted to make this call. While living in the world’s most expensive city and becoming entrapped by the sky-high property rates can certainly turn one to desperate measures, the desperation shouldn’t materialize into a fast-tracked financial apocalypse for you.
This is why it is critical to clearly understand the differences between getting a home loan from a local bank in Singapore and getting one from a foreign bank. For the bold ones willing to take the latter route, here are 5 failsafe commandments to abide by while negotiating a home loan package with a foreign bank:
1. Thou Shall Pay Heed to Interest Rates
The majority of the world’s property home loan market operates as per a floating rate or a fixed rate. Any financial institutions you deal with will inevitably bring this up whilst devising a home loan package; however, the onus of understanding the varying definitions of floating and fixed interest rates is on you from the get-go.
For example – the fixed rate offered by banks in America is permanent for the whole loan tenure, whereas Singaporean fixed rates are usually temporary and last for a specified period of time before reverting to a floating rate.
It is imperative for you to decipher the calculation of your home loan interest rate with reference to an index in order to recognize the time to refinance your loan. In Singapore, local banks determine this value as per the Singapore Interbank Offered Rate (SIBOR). On the other hand, a home loan in the UK will be determined according to the London Interbank Offered Rate (LIBOR).
2. Thou Shall Track Foreign Exchange Rates
The foreign exchange rate is a major power player in helping lay down the financial cards for you to nail a home loan blackjack. A strong Singaporean dollar equates to a highly affordable home loan. Unfortunately, it can also backfire on you when your country’s economy stands on shaky grounds.
As a result, numerous financial institutions allow customers to choose a currency option for your home loan repayments at each required interval.
3. Thou Shall Keep the Refinancing Doors Open
Singapore offers great flexibility in terms of refinancing home loan packages. If you have successfully exited the specified lock-in period of your home loan, then you can switch to any alternate home loan package that you prefer. However, you may not be able to attain this privilege from foreign banks that adopt fully fixed rates.
Secondly, the refinancing conveyance fees are a lot steeper than the already pricey amounts of $2000 – $3000 that you need to pay at Singaporean banks for processing the necessary paperwork.
4. Thou Shall Get an In-Principle Approval
The evaluation of your net worth and loan servicing ratios by foreign is significantly different than an evaluation conducted by a local bank. Luckily, the recent spate of cooling measures introduced in the Singaporean property market have done well to curb debt servicing ratios, which allows borrowers to take on bigger loan packages.
Most importantly, you must ensure that the foreign bank you are dealing with has sanctioned your home loan in principle. The legal hassles that will follow in the aftermath of your wasted deposit and failed home loan negotiation with a foreign bank will far supersede the struggles you will face with a local bank.
5. Thou Shall Say No to “No Downpayment” Schemes
While Singapore home loans have a mandated ceiling of 80% of the property value, other countries may not be privy to the same policies and dangle plenty of “no downpayment” carrots on their stick. Beware!
Full financing home loan schemes usually cloak a tsunami of liabilities like inflated interested rates, costly mortgage insurance, and other restrictive clauses that will eventually swallow you into the depths of financial despair.
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