Getting a new property and a mortgage loan can be an exhausting procedure. Besides being excited about your new dream home purchase, arranging the logistics for house moving and so forth, it is important to ensure ease in your financial well-being and take note of the following essential items that new homeowners should have:
i. Mortgage Loan Insurance
Mortgage loan insurance is provided by many insurance companies to safeguard your home and family against the unexpected, so that they will not be burdened with mortgage repayments or face the possibility of losing their home.
Most mortgage loan insurances allow one to have a single plan that provides life coverage for joint homeowners. Such a plan takes care of unpaid home repayments, should any unforeseen event such as death or total and permanent disability happen to any one of the homeowners.
Most plans provide coverage for a shorter premium payment period. For example, some policies require you to pay premiums for only 25 years if you have undertaken a 30-year home loan. That gives you 5 years of free coverage.
Other features available in mortgage loan insurance is portable coverage, to allow the remaining terms of an existing coverage to be used for a new mortgage loan, should you decide to sell your property or fully redeem your existing loan amount.
ii. Refinance Early and Often
There is a substantial difference between the banks' first and third-year interest rates. This difference is the minimum you can save by refinancing your home loan. It could be more since banks often charge rates that are higher than their advertised loan rates. Banks have said they are under no obligation to offer home loans at their low advertised rates for years 1, 2 and 3 of variable rate loans and those rates can increase at any time.
Therefore, it is important to review your home loan once every few years to see if you can get a better deal by refinancing, particularly so after your lock-in period.
If your lock-in period ends this year, you can look to refinancing in 2010 and then again in 2013, etc. "Every few years" is the recommended interval in the Consumer Guide to Home Loans by the Association of Banks in Singapore (ABS).
iii. Monitor the Changes in Interest Rates
Do not be penny wise, pound foolish. A 0.1% change in interest rate could mean thousands of dollars in savings or more, especially if your loan amount is large (more than $1 million).
For homeowners who take up the variable interest rate packages, the need to monitor the home loan interest rates is even more essential in volatile market conditions. Interbank rates move daily and hence could affect your monthly installments, depending on your loan package terms. Interest rates will only be repriced according to the interest period used. For example, for a three-month SIBOR rate package, repricing is done once every quarter.
The prospect of low interest rates has also opened a window for homeowners looking to lock in low home loan rates. As interest rates move in cycles, the window of opportunity for homeowners to lock in rates may not stay open for long.
iv. Write or Update Your Will
With the new purchase of your dream home, there will be a significant change in the composition of your assets. Therefore, you may wish to write or update your Will to reflect the changes.
A Will is a document which provides for the administration and distribution of what is owned by you, among people whom you desire to have a share or shares of your estate/assets after your death. Essentially, a Will is your expressed intention of what should be done with your property (e.g. movable and immovable assets) after your death.
The iFAST Editorial Team is part of iFAST Central, Singapore's foremost wealth management platform for financial advisory companies.
iFAST Central provides services to more than 50 financial advisory companies, exempt financial advisers and financial institutions, and over 2,500 financial adviser representatives. Damien Fong is Financial Advisor Director at Singcapital Pte Ltd, a financial advisory company.
