What is a Mortgage? How do They Work, and What are the Types of Mortgages Available?

Written by

Hailey Ang

Updated on: January 10, 2023

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What Is a Mortgage? How Do They Work, and the Types of Mortgages Available

A mortgage is money that you borrow from banks or other financial institutions for the purpose of buying a property or refinancing existing debt on a home. You must repay the loan with interest over an agreed period.

How Does A Mortgage Work?

A mortgage provides you with the funds you need to buy property, or refinance existing debt on your home. You pay back the loaned amount plus interest to the lender in regular installments over an agreed period of time, which is typically 25 years.

Types Of Mortgages Available In Singapore

There are several different types of mortgages available in Singapore, including fixed-rate mortgages and variable-rate mortgages.

Fixed-rate mortgages have an interest rate that remains constant throughout the life of the loan, while variable-rate mortgages have an interest rate that can change based on market conditions. Other types of mortgages include graduated payment mortgages, adjustable rate mortgages, and interest-only mortgages.

How To Calculate Mortgage Loans In Singapore

Calculating a mortgage loan in Singapore requires an understanding of the loan terms, interest rate, and various fees associated with the loan. You should be clear about how much money you are borrowing and how much you will need to repay monthly.

With this information, you can then use a simple formula to calculate your total mortgage payment.

The formula includes multiplying the loan amount by the interest rate of your loan, then dividing that sum by 12 months for your monthly payments. In addition, you should consider property tax, home insurance premiums, and other fees associated with the loan in order to calculate an accurate repayment amount.

For example, let’s say you are taking out a mortgage loan of S$800,000 with an interest rate of
2.5%. You would first multiply the loan amount ($800,000) by the interest rate (2.5%), resulting in S$20,000. Then divide S$20,000 by 12 months to get your monthly payments of approximately S$1,667.

After adding in property tax, insurance premiums, and other associated fees, you can calculate your total repayment amount for the mortgage loan in Singapore.

Average Mortgage Rates In Singapore

Mortgage rates in Singapore are relatively low compared to other countries. The average mortgage rate is around 1.25%, which is lower than that of the United States, where the average mortgage rate is 3%.

This low mortgage rate provides a great opportunity for those looking to purchase a home in Singapore.

However, when you apply for a loan in Singapore, there are several factors that will affect your interest rate and total amount payable. These include the type of property you are purchasing, the size of the loan, your credit score, and debt-to-income ratio.

Most financial institutions offer different rates depending on whether they offer fixed or variable mortgages.

If you are looking to take advantage of competitive mortgage rates, it is imperative to shop around and compare different banks and lenders.

There are many tools available online that can help you find the best rate for your situation. Many of these lenders offer special discounts for those with good credit or a large downpayment.

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