How to pick the right financing for your home

When purchasing a property, considerable attention should be paid to picking the right form of financing available in the market.

To help buyers choose the right financing, Mr Gary Tan (picture), an assistant vice president with DBS Bank’s Consumer Banking Group, has shortlisted four main questions a potential homeowner should ask before applying for a home loan.  
Firstly, the potential buyer has to look into the reason behind the purchase.  

“For instance, if it is for investment, you should try to fork out the least cash possible and ride on the investment returns. .

For those who are going to live in the property, they should look at minimising interest cost by putting down as much cash or CPF funds as possible,” he said at a property seminar last weekend organised by Far East Organisation and Today.  

How long the buyer is planning to hold on to the property is another consideration, as it has a role to play when working out the projected interest rate on the loan.

“An investor would naturally like to hold it as short a time as possible, say three or six months, so as to maximise his profit on the sale.”  

Mr Tan says that most homeowners live in the same property for about seven years on average.  

Buyers will also need to consider how interest costs will impact on their cash flow situation.  

“The local interbank borrowing rate has been hovering about the 3.4 per cent to 3.5 per cent mark for the last six weeks, which is a marked increase from about two years ago, when the lowest point was around 0.7 per cent,” said Mr Tan.  

“So you see, the cost of borrowing has gone up in this short span of time. Interest rates have been creeping up slowly over the last few months, in line with the good economy and strong GDP growth.”  

However, he was quick to point out that back in 1996-97, interest rates were as high as 7.5 per cent to 8 per cent.  

“So today’s cost of borrowing at around 3.5 per cent is actually very equitable, although it may sound rather high to those who paid 1 per cent one or two years back.”  

The last consideration is debt management. Ideally, most bankers would recommend about 40 to 50 per cent of a total household income going into liabilities or debt.  

“I will strongly advice all potential buyers to approach a bank and get in-principle approval so that they can purchase the property with peace of mind,” said Mr Tan.  

Source: TODAY, 20 October 2006 

For more information or to speak to a banker, email [email protected]

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