This Is One Loan You Need To Pay Attention To
Leaving the decision to others might be costly
Four years ago, a client of Ally Yang’s bought an S$8 million property and took a SIBOR-pegged mortgage package. He had thought the rates very attractive then. However, with the recent interest rate hikes, he found himself paying 1.6% in interest, as compared to the initial 1%.
“The client was later introduced to me by his relative, and I helped him refinance to a 1.3% mortgage package, allowing him to save S$18,000 a year in interest alone,” says Yang, who is the Head of Mortgage at HugMortgage, a subsidiary of start-up HugProperty.
Scenarios like this are commonplace for individuals who do not pay enough attention to the fine print when they take up this type of loan. Yang’s advice is to compare the different mortgage rates, especially when taking out a sizeable loan, since a 0.1% difference could amount to a substantial absolute amount.
This is where HugMortgage comes in. Launched in September this year and helmed by Yang, it helps home buyers eliminate unnecessary delays in the mortgage search process by providing a one-stop mortgage comparison website for potential or existing mortgagors.
“This way, users looking for a new mortgage or to refinance don’t have to check the individual banks’ website for the available rates, saving precious time and effort,” explains Yang, who has clocked 12 years of experience in this domain.
The platform has an array of easy-to-use tools such as the Mortgage Loan Calculator, Refinance Calculator, and Total Debt Servicing Ratio Calculator. Those looking for a quick answer to their home loan queries can turn to the Dr. HugMortgage chatbot that provides instant replies round the clock, and offers the latest rates available from all participating banks.
The latter is the key differentiator between HugMortgage and going to a bank to use its mortgage services. As an aggregator, it displays the various current rates from the different financial institutions for users to browse, compare and apply. Every single application made through the platform is then reviewed and approved for processing.
“This ensures our customers get the most ideal packages available at the point in time. Occasionally, banks can offer preferential rates on short notice. We are also able to offer this opportunity to our customers by ensuring our rates are as up-to-date as possible,” says Yang.
Another benefit of the service that HugMortgage provides is lack of preferential treatment. In receiving the same referral fees from all banks, there is no conflict of interest. “This policy ensures that our customers will be provided with unbiased recommendations of the mortgage package that best suit their needs,” she points out.
Nonetheless, it does not mean that you should come to Yang and her team without equipping yourself with some knowledge first. She offers three areas you should look out for when choosing a mortgage:
1. Is the interest rate in the mortgage package fixed or floating?
The former is 100% guaranteed by the bank, while the latter changes with market conditions. Depending on your financial situation outlook, you need to decide which works best for you.
2. If it is a floating package, what is the underlining benchmark?
Typically, there are three benchmarks – the bank's own benchmark (0% transparency), SIBOR (100% transparency, but is very much affected by US FED rate) or the bank's own fixed deposit (FD) [50% transparency]. Currently, the FD-pegged rate is the most popular benchmark.
3. The mortgage should be reviewed periodically.
Rates might increase every two to three years, depending on the mortgage package. Hence, it is good to review it from time to time to ensure you have selected the best interest rates for your needs.