Bridging Loan

This is an interest servicing short-term loan (up to 6 months), which serves to help tide over the period between completion of purchase of a new property & receipt of proceeds from the sale of an existing property.

 

Interest Offsetting Loans

If you have substantial cash, consider an interest-offset mortgage instead. This basically links your current account to your housing loan where the interest earned in your current account bears the same rate as the one charged on your housing loan while both accounts are administrated separately. By offsetting the interest earned on your current account against your housing loan interest, you can enjoy big savings for your housing loan as it now effectively serves as an interest-free loan. Every dollar you put into this current account would have the same effect as making a partial repayment of your loan. In addition, it gives you an added flexibility of drawing down cash in the current account when you need to do so, vis-a-vis running the risk of having your cash being 'locked in’ your property and thereby losing liquidity if you go for a lump-sum prepayment. Thus, an interest-offset package enables you to pay a lower effective rate of interest on your housing loan so that a bigger portion of your monthly instalment goes toward reducing the principal amount. This allows you to pay less interest & pay off your loan sooner.

 

Interest Only Loans

If you are a property investor or high income earner who falls within a high tax bracket, choosing an interest-only mortgage would make good sense. You’ll benefit from savings in income tax as the interest portion of loan instalment for investment properties is tax-deductible since the interest-only loan will allow you to maximise tax deduction on interest paid on your housing loan while keeping your monthly instalments low since there are no principal repayments. To a savvy investor who is able to generate higher returns on his investments, any cash outlay saved by choosing an interest-only loan will enable him to be ahead as long as he’s able to generate a higher return on his “freed up” cash on cash. This package also works well for short-term investors. By paying back only the interest, investors would benefit from a lower cash outflow until they sell the property. As a result, they may be able to invest in two properties instead of one.

Other pros include:

• Minimise property cash flow instances
• Increase Returns on Capital
• Maximise tax deduction on interest on housing loan
• Lower rental income would be able to cover the lower interest-only instalments without any cash top up for the
  monthly repayments

 

Reverse mortgage

A Reverse Mortgage is a financial scheme designed for senior citizens to unlock the value of their property into cash flows. It allows the property owner, to receive a monthly payout by mortgaging their paid-up or almost fully paid property to the bank without having to move out or sell their property.

The concept of reverse mortgage is a relatively new one in Singapore. As more and more Singaporeans head towards retirement, reverse mortgages can be a viable option for the senior citizens as they look for solutions to supplement their income. With longer life expectancy, many senior citizens are concerned about the rising costs of living and reduced income streams during retirement. This is a reality which affects everyone, whether he is a private property or HDB flat owner. For senior citizens who have fully or almost fully paid for their property and want to supplement their income during their retirement, they can now consider a reverse mortgage as an additional option.

 

Reference Rate Loans

Reference rate loans are transparent to the consumer as the rates are publicly available indices. For example, the Singapore Interbank Offer Rate (SIBOR) is a daily reference rate based on interest rates at which financial institutions offer to lend unsecured funds to other financial institutions in the Singapore wholesale money market (or interbank market). SOR stands for SWAP Offer Rate and it is one of 2 exchange-traded interest rate futures products in Singapore. The SOR is an FX forward implied rate calculated from a 3-month USD/SGD forwards with official fixing that is provided for by the Association of Banks in Singapore. For the consumer who wants a variable rate loan and to maintain a certain level of transparency of rates to allow quick decision-making (ie, when to switch loan packages), he should look out for loans that are pegged to SIBOR or SOR reference rates.

 

Variable Rate Loans

Variable-rate, also known as floating rate, is one where interest rates are constantly changing and financial institutions are guided by the Singapore Inter-Bank Offer Rate (SIBOR) to determine the rate to charge for their loans. Variable rate packages offered today can work off reference rates such as SIBOR or SOR or the respective bank’s board rate. For SIBOR- and SOR-pegged variable packages, frequency of review of the base rate is either 3-monthly or 12-monthly (depending on the type of base rate selected at the onset). Variable Rate Loans allow the consumer a level of flexibility when it comes to switching packages and/or repayment – therefore this option can be considered by a savvy buyer/investor, together with some value-added advice of a housing loan consultant.

 

Board Rate Loans

Board rate loans are housing loans with interest rates that are working off the respective financial institution’s prevailing board rate. In determining their respective board rate, financial institutions are generally guided by the prevailing SIBOR while factoring in their operating cost and opportunity cost. The financial institution is not obliged to reveal the basis of their board rate; as such, they owe no explanation to any request for transparency. For such packages, it is a normal practice to provide a fixed discount off the board rate for the initial loan tenure, after which the chargeable rate would revert to the prevailing board rate.

 

Fixed Rate Loans

Fixed Rate Loans are ideal for the consumer who wants to be sure exactly of how much his monthly payment will be and not worry about interest rate changes. Fixed rate packages offer a fixed interest rate for a certain period (usually one year or more), after which it becomes a variable rate loan. Typically, Fixed Rate Loans come with lock-in periods and early repayment penalties. This is a good option to consider if interest rates are low or if you’re a discerning consumer who wants to conform to a fixed repayment budget regardless of varying interest rates.