Mortgage Myths Busted in Singapore

Homeownership in Singapore is a common aspiration, with a homeownership rate hovering around 90%. However, numerous myths about mortgages often confuse potential homeowners, leading to costly mistakes. This article aims to bust these myths, providing clarity and guidance for those navigating the world of home loans in Singapore.

Myth 1: Fixed-Rate Mortgages Are Always the Best

Contrary to popular belief, fixed-rate mortgages are not universally the best choice for everyone. While they offer predictability with constant interest rates for up to three years, they are only advantageous when rates are expected to rise significantly. For instance, during periods where rates rose, fixed-rate loans could be more cost-effective than floating-rate loans. However, if rates remain stable or decline, floating rates could be more economical, saving borrowers thousands over the loan's duration.

Myth 2: It's Cheaper to Rent Than Own a Home

This myth is far from the truth. As per data from HDB's 2013-2017 analysis, owning a property can be 15-50% cheaper in monthly payments than renting a comparable property. The gap widens when considering the equity and wealth accumulation that comes with homeownership. While renting may offer short-term flexibility and less upfront cost, owning a property is a long-term investment, contributing to an individual’s financial stability and asset portfolio.

Myth 3: Approval-in-Principle Guarantees the Loan Amount

Many believe that once you receive an approval-in-principle (AIP) from a bank, the loan amount is guaranteed. However, this is a misconception. An AIP is based on your current financial status and is not binding. Banks may alter their commitment based on new information about your financial health or the property. Therefore, maintaining a good credit score and avoiding new loans during this period is crucial to ensure your mortgage process goes smoothly.

Myth 4: Perfect Credit Score is Necessary for a Mortgage

Contrary to popular belief, a perfect credit score is not a prerequisite for obtaining a mortgage. Lenders look at various factors, including your income, debt-to-income ratio, and employment history. Thus, even with a less-than-perfect credit score, it's possible to secure a mortgage.

Myth 5: Mortgages Are Only Available from Current Banks

You are not limited to your current bank for obtaining a mortgage. It's important to shop around and compare rates and terms from different lenders to find the best deal that suits your needs.

Myth 6: Large Down Payment is Mandatory

It's a myth that you always need a large down payment to qualify for a mortgage. While a bigger down payment can have advantages, it's not a strict requirement. Different types of properties have varying down payment requirements, making it possible for many to own homes with smaller initial investments.

Myth 7: Self-Employed Individuals Cannot Get Mortgages

Being self-employed does not disqualify you from getting a mortgage. While it may require additional documentation to prove income stability, self-employed individuals can indeed secure mortgages.

Myth 8: Always Choose the Mortgage with the Lowest Interest Rate

While a low-interest rate is appealing, it shouldn't be the sole deciding factor. Other elements like loan terms, fees, and conditions play a crucial role. Always consider the overall value and cost of the mortgage before making a decision.

Conclusion

Debunking these mortgage myths is crucial for making informed decisions in Singapore’s real estate market. Always seek professional advice for personalized guidance tailored to your financial situation.