7 Different Types of Home Loans, Which is Right for You?

7 Different Types of Home Loans

There are many different types of home loans out there. Which type of loan is right for you? Read on to find out.

Have you ever researched the types of home loans available? Let’s just say it becomes a dizzying mess of titles and numbers after a short while.

But finding the home loan that is right for you doesn’t have to be a headache. Instead, we’ve made it easy by breaking down the many types into seven easy-to-understand categories.

Which one is right for you?

The Seven Types of Home Loans to Know About

From first buyers to those moving from one house to another, our article has a loan for everyone. Finding the right one has never been easier than with our handy guide.

1. Fixed-Rate

Fixed-rate mortgages are exactly what they sound like: they provide a fixed rate applied to monthly home payments. This rate does not fluctuate for anywhere from one to five years.

These loans are perfect for people who have found their dream house and are intent on staying there for a long period.

Advantages – The best thing about a fixed-rate loan is its dependency. Homeowners know exactly how much their monthly bill will amount to. As you can imagine, this makes budgeting easier.
Disadvantages – Unfortunately, the expected payments come with a price. The amount of interest paid is higher due to the long terms, and interest rates are also higher. Furthermore, individuals using these loans must pay for a certain time period; if loan owners pay the loan off early, individuals are fined.

2. SIBOR Pegged

SIBOR pegged loans mortgages fall into the floating rate category. They are the opposite of fixed-rate mortgages. The interest rate fluctuates with the Singapore Interbank Borrowing Offer Rate, meaning payments also fluctuate.

The bank uses a one or three-month peg that determines monthly payments. One-month pegs fluctuate greatly, as the payment changes from month to month. Three-month SIBORs change every three months.

Advantages – SIBOR rates are less stable than fixed-rate loans, but when the rate falls, it does so quickly. That means homeowners enjoy much lower payments for the duration that rate remains.
Disadvantages – Obviously, the disadvantage with these is that owners can’t accurately estimate how much a payment will be. Also, three-month SIBOR loans are usually higher than one-month, meaning difficult payment costs may still be a possibility. Consequently, it’s important loan holders practice careful budgeting.

3. HDB

HDB loans are for individuals wishing to purchase an HDB flat. The loan is ideal for individuals with low cash at hand because they require a low down payment. Furthermore, only individuals who make below a certain monthly income are permitted to take out an HDB home loan.

Advantages – The greatest advantage of this loan type lies in the fact that it’s perfect for people just starting out. It is also ideal for families who have limited income. Furthermore, there are no penalties for paying off the property early and many loan providers are flexible about late repayment options.
Disadvantages – Although HDB loans provide a stable opportunity for future homeowners, they also come with a higher interest rate. In fact, the interest is always higher than the loans provided by banks.

4. Equity Loan

Equity loans are excellent for current homeowners. This type of loan is often referred to as a “second mortgage.”

With it, homeowners use their abode’s current equity as collateral for a loan.

Advantages – Equity loans are perfect for current homeowners wishing to move. Individuals take out a loan using the equity on their house and use the cash to help pay for the new dwelling. Additionally, equity loans help finance home renovations and come with low interest rates.
Disadvantages – Unfortunately, those in an HDB flat cannot obtain a home equity loan; they are available only to homeowners with private property. Furthermore, legal costs for applying for a loan are high.

5. Interest-Offset Mortgages

Interest-offset mortgage loans include a literal bank account that is used to repay the mortgage. Payments are added to this bank account.

In summary, it acts like a traditional loan with the added twist of a banking account thrown in the mix.

Advantages – Why bother with this loan type? The main advantage is that owners pay off the principle of their loans quicker. Also, loan holders have access to the money they have invested in their loan at all times. If an emergency occurs, they can withdraw money from the account.
Disadvantages – Only stoic savers should invest in this loan type. If funds are withdrawn from the account, the payments increase.

6. Board Rate

Board rate mortgages have slowly died out in recent years, but they are still a loan type potential owners should know about.

With a board rate loan, banks determine the interest rate. In the past, the formula for deciding on the rate was questionable. Today, banks make the formula as transparent as possible, but owners still might not be told how the rate is determined.

The rate fluctuates according to the bank’s determination.

Advantages – More recently, board rates have stabilized, meaning loan holders have a better idea what to expect of payments. Additionally, many banks with this loan offer perks for choosing their payment option.
Disadvantages – Banks determine the interest rate, and that rate fluctuates without any explanation as to why. Owners are only given a month’s notice if the rate changes.

7. Fixed Deposit Pegged Home Loan Mortgages

Fixed deposit pegged mortgages are a new phenomenon and quite popular. Similar to SIBOR loans, they are pegged–but in this case to the bank’s fixed deposit rate.

Advantages – High-interest rates are costly to banks, so loan holders enjoy a reasonably fixed rate. Compared to SIBOR loans, many find they enjoy a lower rate that isn’t as volatile.
Disadvantages – Like board loans, the banks are in charge of the rate. That means the rate will fluctuate. Although banks are transparent about these loans, there is always the risk the rate will increase.