What to know before buying a new property, or refinancing your home loan

Home loan rates are rising, with three-year fixed rate packages offered by Singapore banks up by at least 1.6 percentage points from late last year’s 1.15 per cent per annum. As interest rates are likely to continue on their upward march, what can existing home owners and aspiring home buyers do?

In this column, Mr Lim Beng Hua, UOB’s head of secured loans, answers some of your key questions about rising mortgage rates. The 50-year-old expert has been in the financial sector for over 20 years. Secured loans are those that are backed by collaterals, and include mortgages.

Q: I am buying a new property this year. What are some considerations I should keep in mind when looking for a home loan?

A: For most of us, buying a home is the largest financial commitment we will make, so we need to research and plan for a property purchase accordingly.

Carefully assess how much you can afford to pay in upfront fees – including the cash outlay, stamp duties and legal fees – and your monthly mortgage. Our local interest rates are strongly influenced by global central bank policies. Since they have been rising, you should consider using a higher rate when calculating your potential monthly payments.

There are digital tools like UOB Home Solution that helps you instantly calculate the home loan amount you can afford and get a valuation on the property you are eyeing, so you do not overextend yourself.

Q: Should I choose a fixed-rate or floating-rate mortgage? Which one is better in the long run? 

A: This really depends on your needs. If you prefer greater certainty on your mortgage payments to manage your cash flow, a fixed-rate package would be more appropriate. Or you can consider a floating-rate package if you are less sensitive to interest rate fluctuations.

We also offer packages where a portion of the amount is based on a fixed rate, and the rest is pegged to a floating rate like the Singapore Overnight Rate Average (Sora). This gives you the flexibility to make prepayments should interest rates stay high, while the fixed-rate portion protects you against further rate increases.