Is the lowest interest rate package always the best option?
We do not have a mortgage interest rate comparison table in our app. You could find this type of interest rate comparison table in a lot of comparison websites. We find that it may not be useful for you in making decisions during a mortgage application.
Assuming you visit the car showroom, the car salesman only provides you a list of car prices without telling you the specs of different car models. How do you choose a car model based on the price itself?
Here on the consultancy team at RICHCO-SPACE, we advise and assist our clients in choosing the right mortgage package. The right package may not be the lowest interest rate. To us, interest rate could be the least concerning factor. In the Singapore context, the mortgage packages offered by different banks are quite competitive. The differences between the lowest and second lowest could be in the range of 0.02% to 0.05%.
There are a few factors to determine which bank to apply for and what package to choose, it depends on what you want, here are three factors which are commonly more important than interest rate:
Loan-to-valuation (LTV)
Some banks are able to offer up to 90% LTV for own-used commercial or industrial property. Some banks could only offer up to 80%. The 10% difference means higher cash outlay for the transaction. If you require a higher loan amount, needless to say, you will go for the 90% LTV offer, even if the package is slightly higher in interest rate.
Longer loan tenure
It is about cash flow management. With the same amount of loan and similiar interest rate, the longer loan tenure means a lower monthly installment. It is extremely important for people who have tight cash flow and required cash for other needs. Some banks could stretch slightly longer and some banks could not.
Loan size
Always thinking of interest rate risk. The lower interest rate is always the floating rate. In recent years, we have noticed that some of the banks’ fixed rate packages are competitive. Sometimes, they are quite close to the floating rate. If the client’s mortgage is at the high side of 6 digits or above 6 digits amount, we will advise the client to take up a fixed rate package. To us, it is not worth taking a small advantage for a potential bigger risk. The small saving advantage is certain but the upside risk is uncertain.
The Takeaway
There are many more other factors to determine what bank package is suitable for your property mortgage needs.
For any mortgage enquire, please start to explore, click here.
