Singapore Homebuyers: Shorter term mortgage preferred!

Homebuyers in Singapore will likely opt for mortgage loans with shorter repayment periods.

That's despite the availability of new home loans that offer up to 50-year tenors.

Experts said more are taking into account their retirement age and interest costs when servicing their loans.

Serene Loong and her husband took a $760,000 home loan when they upgraded to a two-storey, three-room private apartment at Upper Serangoon in 2005.

With a 35-year home loan they got from DBS Bank, the couple was paying $2,000 in monthly repayments.

That loan has since been refinanced to 28 years with another bank, and monthly payments have come down to $1,800 at a lower interest rate of 1.88%.

"I definitely was taking into account the affordability, as well as when I would retire," said Loong, who is the founder of website www.reallifetheory.com.

She added: "I wouldn't want to be servicing a home loan after retirement because I think there will be other expenses that I might have to take care of like medical expenses, etc."

So far, Singapore banks are offering home loans with a maximum term of 35 to 40 years with age capped at 70 to 75.

UOB has come up with a first by offering home loans that stretches repayment to 50 years and a maximum age of 80.

UOB said that for the maximum tenor of 50 years, the requirement is to have at least 35 years remaining on the lease for leasehold property and no more than 80 years of age at end of loan tenor.

Still, some market players said such loans may be more suited for investors.

Dennis Ng, who is the founder of mortgage consulting firm HousingLoansSG.com, said: "A longer loan repayment period may make sense for investors because the investor is always looking for return on investment. So the less capital they put into the property, the higher their return."

For ordinary home buyers, experts said they should tailor their loan repayment period to the age they want to retire.

DBS Bank's head of deposits and secured lending, Ms Lui Su Kian, said: "The average loan period we are seeing now for customers is about 30 years. In general, I think, especially in Asia, we do see that our customers are prudent when it comes to managing their mortgage, so most of them do not stretch out to the maximum period."

While a 50-year tenor may reduce monthly repayments, experts said interest could push the loan's amount by up by 15 to 20%.

For example, a $1 million loan at 50 year tenor will total to $1.45 million by the end of its term - much higher compared to the 1.3 million principal and interest if the loan was taken up at a 35-year tenor, according to DBS.

And comments from Channel NewsAsia's Facebook page show most buyers are averse to half a decade loans, with some saying 25 to 30 years is their threshold.

HousingLoansSG.com, which sees 20 to 30 enquiries a day, said around 70% of its clients opt for 25 to 30-year loans, while 15% go for the 30 to 35 year loans. The rest prefer terms of less than 25 years.

"If you have problems paying the installment right now when you are much younger and your income is much higher, I think you will have a bigger problem as you age," said Mr Ng.

Ms Lui said: "In this current interest rate environment, where interest rate is relatively low, we actually encourage our customers to try to shorten the loan period based on their affordability. Because rates are low, you can actually pay down as much as you can."

Ms Phang Lah Hwa, Head of Consumer Secured Lending at OCBC Bank said customers generally take up to the maximum loan tenor as they can repay or make capital repayment along the loan tenor.

"Shorter loan tenors are typically taken up due to the age of borrowers or by those who have the funds to service a higher monthly commitment," she added.

Mr Harmander Mahal, Head of Customer Value Management at HSBC Singapore, said: "We observe that customers who take up housing loans with longer tenor (30 to 35 years) tend to be younger in the age group of 35 years old and below.

"They are usually financing the purchase of their first homes and therefore, prefer to stretch their repayments over a longer period so that they can pay lower and more affordable monthly instalments."

HSBC said its housing loan portfolio has seen double-digit growth over the last five years with an increase in market share.

In its 2011 annual results, residential mortgages have increased 21% in value year-on-year for 2011 compared to 2010.

Source: Channel News Asia

Coincidentally the wife and I have just made a partial repayment on our home loan. And we have chosen to reduce the loan tenure instead of the monthly repayment amount. So the cat's ouuta bag... we do not belong to the age group of 35 years and below!

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