• Home Loan BYTES FROM OUR KITCHEN

    Home Loan Glossary

    Due to the rising prices of real estate in Singapore, it has become very expensive to own a house in the country. As buying a residential property costs a lot of money, people choose to opt for home loans. Home loans help people by providing them with the funds they need to purchase a house, which can be repaid over a period of time. There are many banks and financial institutions in Singapore which provide home loans. Some of them are DBS bank, OCBC bank, HSBC bank, Standard Chartered Bank, etc.

    Besides the word ‘loan’ and ‘mortgage’, there are many other terms associated with home loans and knowing what they mean can be very beneficial for people.

    Some of the terms and terminologies used in relation to home loans are as follows-

    Accrued Interest – It refers to the interest that has not been paid but incurred.

    Annual Value (AV) – It refers to the annual rent of the property, which excludes the service charge and the rent for fittings and furniture. This annual value is determined by the Income Revenue Authority of Singapore (IRAS).

    Approval- In- Principle (AIP) – It is an approved amount of loan given by banks on the basis of an individual’s credit report.

    Amortization – It means reducing your loan amount through regular payments over a period of time. This payment includes your principal amount as well as the interest charged on it.

    Appreciation – It refers to the increase in value of your property.

    Board Rate – It is an index, which is bank specific and is used by them to determine the rate of interest they will charge from you.

    Borrower – It refers to the person taking the home loan from the bank.

    Bridging Loan – This is a short term loan given to those borrowers, who want to buy a new house, but have not received money from the sale of their old home. The idea is that this bridging loan will be repaid by them once they receive the amount from the buyer of their house.

    Cancellation Fee – Banks charge you a small fees if you cancel your home loan after accepting the offer letter from them, but before you take the money.

    Certificate of Statutory Completion (CSC) – The Certificate of Statutory Completion (CSC) is a proof of your house’s stability. The Commissioner of Building Control issues this certificate for a property after its construction is completed. You can occupy the building only if after you get the CSC or TOP (Temporary Occupancy Permit).

    Claw – Back Period – It is the time period during which banks have the right to clawback. It means that if you repay your full loan within a specific period, your bank will reclaim the subsidies such as insurance premium, valuation fees, etc., which it gave you when you took the loan.

    Collateral – It is the property you give as security when you take the home loan.

    Combo Housing Loan – Here, you can divide your home loan in parts. Each part of this loan will be then considered as a separate loan and can be of different types. For example – if you divide your home loan into two parts, you can have fixed rate of interest on one part and variable rate on the other.

    Construction Loan – This is a short term loan given to the borrower for the purpose of constructing a new property or for reconstruction an existing one.

    Conversion – It is transferring of your existing package of loan to another package with the same bank.

    Credit Report – This report contains all the information related to a person’s credit history, which is used by the banks to know about his or her creditworthiness.

    Default – It means that the borrower has failed to repay his home loan on time.

    Down Payment – It refers to the money which is given up front by the borrower to purchase the property.

    Early Redemption – It means that you have repaid your loan before maturity. You can choose to either make a full redemption or a partial one. Banks may charge you a fees if you prepay your loan.

    Equity Loan – It refers to a loan that has been taken on your existing property, the value of which has appreciated. The money acquired from this loan can be used for any purpose.

    Fire Insurance – It is the insurance provided to cover the damages and losses caused to one’s house by fire. In Singapore, it is compulsory for people staying in HDB flats to own a fire insurance.

    Foreclosure – This happens when a person fails to repay his housing loan and his or her bank takes the house.

    Guarantor – This term is used for the person who agrees to repay your home loan if you fail to do so yourself.

    Home Insurance or Mortgage Reducing Term Assurance (MRTA) – It protects the family of the borrower in case anything happens to him or her before he or she pays off the full loan.

    Income Property – It refers to the property from which you earn an income. For example – Rent. The tax is different for these properties.

    Installment Payment – It refers to the monthly payments you have to make every month in order to clear off your loan.

    Interest - offset Account – When you connect your bank account to the interest charged on your home loan, you agree to offset the loan interest with the interest you earn on your account.

    Interest Only Payment – It means that you have to pay only the interest charged on your home loan for your monthly installments.

    Joint Tenancy – This refers to the joint ownership of a particular property by two people or more, where each of them have the same interest in the property. Here, the property belong to the other owners in case anything happens to any one of them.

    Late Charge – It refers to the fees that you have to pay in case you fail to pay your monthly installment on the due date.

    Legal Fee – It is the fees used for hiring a lawyer who will handle all the legal formalities required for the purchase of your property and for taking the home loan. It is inclusive of the conveyance fees that has to be paid for the administrative and legal work associated with ownership transfer of a building or land from one person to another.

    Letter of Intent (LOI) – It refers to the agreement between the different parties to go ahead with the negotiations.

    Letter of Offer (LO) – It refers to the contract that is offered by the bank to you when you take a home loan. The document becomes legal as soon as you accept it.

    Loan Amount – It refers to the total amount that the borrower have to repay to the bank.

    Loan Tenure – It refers to the period of time you will take to repay the home loan.

    Loan – to – Value (LTV) – It is the ratio between the loan you are taking and the value of the property.

    Lock- in Period – It refers to the number of years for which you and your bank are to work with each other. If you try to change your bank or your loan term during this period, you will attract penalty charges.

    Market Price – It refers to the actual selling amount of the property.

    Maturity Date – It refers to the date on which you have to repay your full loan. This includes the principal amount, rate of interest and any other fees that has to be paid.

    Mortgage – It is another name for home loan. Here, you give your house as collateral security when you take the loan.

    Mortgagee – It is used to describe the lender.

    Mortgagor – It is used to describe the borrower or the person who owns the property that is given as security. All the owners of this property have to be borrowers of the home loan.

    Mortgage Broker – It is a term used to describe the person who helps in finding a good mortgage.

    Net Worth – It is the result you get after subtracting assets from liabilities.

    Option to Purchase – It is an option provided by the seller to the buyer of a property to purchase it within a specific time period at a particular price. If the buyer agrees to purchase it, she or he has to use her or his Option to Purchase during the mentioned period. The purchaser has to pay an option fees.

    Property Tax – This term is used to describe the tax which one has to pay to the government for immovable property.

    Prepayment – The amount you pay in addition to the payments you have to make every month is known as Prepayment.

    Prepayment Penalty – When you repay your home loan very early, banks charge you a penalty for the same.

    Principal – It is the amount you have borrowed from the bank.

    Principal Balance – It refers to the pending loan amount that you have to repay. It is exclusive of the interest rate and other fees and charges.

    Purchase and Sale Completion – It happens when the developer or the seller gives the title of ‘property owner’ to the buyer.

    Rate of Interest – It refers to the rate of interest which is charged by the bank on your loan. It can be either fixed or variable or a combination of both.

    • Fixed Rate – Here, the interest rate remains fixed during the loan tenure.
    • Variable or floating rate – Here, the interest rate changes based on the market rate. For example – Standard Chartered Bank in Singapore determines its variable rate based on SIBOR.
    • Combination of fixed and variable rates – Here, your interest rate is fixed for initial few years and then switches to variable.

    Refinancing – This term is used to describe the process where you replace your loan from one bank with a new loan from another bank in order to get a better offer.

    Repricing – This term is used to describe the process where you change your loan package within the same bank.

    Sale and Purchase Agreement – It refers to a contract between the buyer and seller of a property. This contract finalises the sale and purchase of the particular property.

    SIBOR SIBOR or Singapore Interbank Offered Rate refers to the interest rate which banks and financial institutions in the Island nation use to lend money to each other.

    Stamp Duty – It is a government tax which the buyer of a property has to pay on the purchase.

    SOR – Swap Offer Rate or SOR refers to the rate which is derived by adding SIBOR to the lending costs sustained by the bank.

    Temporary Occupancy Permit (TOP) – It is issued by the Commissioner of Building Control and you can shift in a building temporarily if you have a TOP.

    Tenancy – in – Common – It refers to the nature of ownership. Here, the interest of the dead owner of a property does not transfer automatically to the other owners.

    Title Deed – This document is a proof of a person’s right to a property.

    Valuation – It is referred to the market value of a property, which is required by banks to calculate the maximum loan they can give to an individual for that property.

    Knowledge is power, and if you are aware of all the terms related to a home loan that you are planning to take, it will save you a lot of trouble that would have otherwise been very worrisome.

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