IS 5.5 INTEREST RATE GREAT FOR MORTGAGE?

IS 5.5 INTEREST RATE GREAT FOR MORTGAGE?

We all dream of being homeowners, a goal we want to be realized sooner than later. But what does it take? Sacrifice, hard work, and determination! Yes, the three qualities can only translate into a home after being converted into money first. How much are we talking about? How much does a house in Singapore cost?

Taking a mortgage is a route many love to follow. But what are the costs? Is it a better option to acquire mortgage than go to borrow money online? Let’s pick 5.5 for a mortgage interest rate. Isn’t that too high? Or is it low? Well, different factors affect the rate a mortgage lender will give you. Let’s look at these factors first.

Factors affecting mortgage interest rates

Different lenders will adjust mortgage rates based on various factors. They know. We want you to know too.

Deposit

It is obvious the higher the deposit, the lower the interest you are likely to get. The reasoning is this; the risk involved is more economical because you have a higher stake.

Normally, borrowers paying a down payment of 20% or more are highly favored. Any percentage less than 20 will require you to purchase a Private Mortgage Insurance (PMI). That is more costly.

Time

The time between when you acquire a mortgage and the time you finish repayment also influences the interest rate you get. With that in mind, remember the more extended the mortgage term, the higher the interest rate. This will translate to increased overall costs. Although, with shorter periods, you will have to bear with high monthly payments.

Fixed or adjustable?

Interest rates vary in types. There are two kinds; fixed and adjustable. Whichever you choose determines the interest rates you will get. For the fixed-rate, what you get does not fluctuate. With this rate, you will pay a constant amount. Although, the other factors will determine the exact rate you will be charged.

For the adjustable rate, you will start with a low-interest rate. This rate will change with time. Normally, it increases. Therefore, the type of interest rate you choose will determine the rate you repay with.

Credit rating

A mortgage is a risk. Therefore, precaution has to be taken to mitigate any imminent loss. On that note, lending companies look at the borrower’s credit score. Your credit rating shows how reliable you are.

High ratings imply reliability. Therefore, even if given a lower interest rate, the lender is sure the amount will be paid back in full and in time. That is why one is advised to check their credit score before even thinking of applying for a mortgage.

Valuation

The price of the home you are purchasing also determines the interest rate you will get. The interest rates will increase or reduce based on the amount of loan borrowed plus the price of the home. If the rates are incredibly high, you may decide to borrow money online.

Location

Some locations are so prime that lenders can’t help but increase the interest rate. Others are really not highly regarded locations forcing mortgage issuers to reduce the interest rate by a little margin. Therefore, be sure to spend more money in the form of interest for homes on prime land.

Mortgage Rates in Singapore

Singapore is home to one of the most costly houses in the world. On midpoint, the average interest rate of acquiring a home in Singapore was 2.2% as of 2019. Although this rate varies based on different factors. If your house is HBD flat or a building still under construction, or even a commercial premise, expect different interest rates on those categories.

First-year interest rate comparison

For HBD homes, expect ratios of between 2.15% and 2.45% for a fair price. Compared to private property, you will spend a little more. Private property has an average rate range of 2.16% and 2.54%.

Refinancing HBD flats will set you back an interest rate of between 2.15% and 2.48%. On the other hand, refinancing private property rates range between 2.16% and 2.53%. These figures vary depending on whether the rate type is fixed or floating. The lower limits represent floating rates, while the fixed rates are represented by the higher limit rates.

Rest rates

Singapore homes are priced using rest interest rates. Unlike vehicles’ flat rates, rest rates tend to be slightly cheaper. In fact, using flat rates, you may pay interest amounts to double the rest interest rates. So, how is the rest rate determined? Here is how.

The rest rate is calculated monthly. After every month of payment, the interest rate you should pay is calculated based on the balance remaining from the loan you are servicing. On the other hand, flat rates will have you pay double the interest you would have paid using the rest rate. Looking keenly at the rest rate calculation, one might be tempted to refer to this method as reducing the balance.

Fixed rates vs. floating rates

For fixed rates, you will have to pay back your loan at a constant rate. This means whether the market rates fluctuate or not, the rates will not change. Conversely, floating rates vary with respect to the prevailing market rates. If the market rates increase, be sure the interest rate will rise if you go the floating rate way.

Singapore hosts one of the world’s most expensive homes. It comes with high rates. Therefore you should not be surprised when this developed country resists the world’s downtrend on reducing mortgage interest rates. Having seen the interest rates for mortgages in Singapore, averaging between 2% and 3%, we may conclude 5.5 is on the higher side.

Therefore, to conclude, an interest rate of 5.5 is extremely high, based on the average mortgage rates in Singapore. Probably, the lender is giving you a high rate because of the factors mentioned earlier in this article. Or, you’d instead opt to borrow money online.

The Bottom Line

Before settling for a specific mortgage rate, do your homework well. Why go for 5.5% when you could get a rate of about 2%? Be prudent. Singapore has many lenders offering more quality homes for lesser interest.