Mortgage Loan Facilities for Foreigners in Singapore
Real estate property acquisition is a huge undertaking anywhere on the planet. Families spend billions each year on loans and mortgages obtained from financial institutions just to secure a home. As such, the majority of homeowners in many countries spend the better part of their lives in debt, struggling to make every single payment each month. The situation is even worse for foreigners due to the limited funding options often available to them to assist with the property acquisition. It therefore often means that any real estate purchase will have to be done in cash, which is hardly ever feasible. Singapore, however, differs in this. Besides having world-class real estate, the country offers its immigrants a lot of convenient options to enable them to own properties of their own without much trouble. Let’s take the time to quickly explore some of these options and how to navigate through the process.
One of the most crippling aspects of mortgage loans is the inflated interest rates. Homeowners end up spending much more than the actual value of the property in the long run as interests on their mortgage loans keep accumulating. The situation cannot be entirely be blamed on the lending institutions. Several factors come into play such as the state of the economy, annual inflation rates and government’s policies or cushioning programmes. It, therefore, follows that the well-performing economies are more consumer-friendly, offering low-interest rates on both consumer and mortgage loans due to the stability of their currency values.
Singapore happens to be one of the most ideal countries for property acquisition. Mortgage loans have always been consistently low since the turn of the century and are currently at their lowest of only 2%. These interest rates are dependent on the US FED rate on which they are benchmarked. Currently, the rate is sitting at 2.25% however it is targeted at 2.0% which could see homeowners and potential homeowners catching a break in interest rates. It is worth noting however that the FED rate is affected by several factors such as domestic issues within the United States and other trade conditions. While the fall of the rate cannot be guaranteed, its stability is well established hence making property investment less risky.
Mortgage interest rates in Singapore are also closely monitored and regulated by the Monetary Authority of Singapore (MAS). The authority is the central bank of Singapore. Its main mandate is to promote sustained non-inflationary economic growth as well as foster a sound and progressive financial centre. It, therefore, keeps interest rates in check to protect home-owners from inflationary incidences both foreseeable and unexpected.
Sourcing Mortgage Loans
The thriving Banking Sector in Singapore has seen the emergence of numerous lending houses that have very user-friendly mortgage loans at very low-interest rates. The mix includes local banks such as DBS, UOB and OCBC. International players such as Standard Chartered, Citibank, HSBC, Maybank, CIMB and the Bank of China also offer attractive and competitive mortgage packages for both the native population and foreigners alike. Gainfully employed foreigners can easily realise their dreams of owning a property with the aid of all these institutions that are more than eager to assist. The availability of so many lending institutions also makes the niche competitive, to the benefit of the consumer. One can easily compare the available options and settle for the most suitable one that best addresses personal needs and preferences.
Getting the Loan
As already established, there are a lot of lending institutions that offer mortgage loan facilities to both the natives of the country as well as to all interested foreigners. The banks, however, differ in their demands and pre-requisites for home loans processing for foreigners. It is therefore ideal to deal with a bank that has handled such applications before. Choosing the right estate agent to help you with the process can save you a lot of trouble with the application process. The agency will facilitate the application through its affiliates in the banking sector who can expedite and ease the process quite significantly.
Naturally, the first step on your journey to homeownership in Singapore is opening an account with your selected lending institution. The requirements for account opening are not entirely dependent on the discretion of the bank. Rather, they are laid out and governed by MAS regulations. The regulatory authority is also responsible for supervising the conduct and operations of all financial institutions in the country by establishing rules and regulations that guard against improper practises within these institutions. As such, there can be no compromise when it comes to account-opening pre-requisites and applicants need to fully comply.
Account Opening Requirements
Let’s just quickly run through what exactly you will need to successfully open an account with a Singapore bank or any other lending organisation, both local and international ones.
- ID Document
This one is pretty easy, foreigners can simply use their passports as a positive ID document. The passport must, however, have at least six months of validity still left otherwise it is considered invalid. Malaysians can, however, use their National Identity cards from their country as a valid ID document in Singapore instead of a passport. Both the front and back of the card must be visible and eligible.
- Proof of Employment/Study
The proof of employment is necessary for the bank to establish whether or not you have a valid reason for being in the country and, more importantly, for wanting to own a property in the country. Employed foreigners will need to provide their employment passes obtained from the Ministry of Manpower at the time of their employment. Students, on the other hand, must produce their student cards.
- Proof of Residence
Finally, banks will need a proof-of-residence document which establishes the permanent residential address of the applicant for the sake of formal communications and location if need be. The document should be a recent one, obtained or issued within the past three months for it to be considered valid. Several acceptable documents can act as a proof of residence such as an In-Principal-Approval (IPA) obtained from the Ministry of Manpower, a tenancy agreement, a work permit from the same ministry (for house helpers), a utility bill (i.e. water and electricity), a bank statement from other existing accounts if any, a payslip (for the formally employed).
In the absence of all these documents, applicants can still find a workaround by obtaining testimonial letters from respected boards, authorities or organisations such as a regulated insurance company from a FATF subscribed country. Students who are yet to establish permanent residence status can also use letters of offer from their school as a valid document however not all banks will necessarily accept such an arrangement. If these documents cannot still be secured for one reason or another, another workaround can still be exploited through your employer (for working foreigners). The firm can write a letter testifying on your behalf that you are indeed employed with them and a resident of the country. A quick consultation with your bank can also help you to find an acceptable alternative at the discretion of the bank without violating any MAS regulation in the process.
***It is important to note that any discrepancies or inconsistences on the documents will raise alarm and cause the application to be rejected. Applicants should ensure that there are no errors on any of their documents by cross-checking multiple times before submission. Common errors and slips such as spelling errors and incorrect figures on dates are very costly.
Selecting the Ideal Mortgage Type
The mortgage type selected can easily make life easy or difficult for you. Let’s look at some of the most favourable mortgage types available to foreigners in Singapore as well as their benefits and disadvantages.
- The Fixed Rate Mortgage
The fixed-rate mortgage ensures stable interests over the loan tenure which usually ranges between one and five years. Beneficiaries enjoy the stable interest however the loan has limited flexibility should one wish to redeem it in any way at some point before it is fully repaid.
- SIBOR/SWOP-Pegged Mortgage
This type of mortgage is for savvier applicants. Since interest rates tend to fluctuate, there is always a chance that they can do so in your favour. This mortgage, therefore, will result in lesser interests if the rates decrease. Of course, it also means you tend to suffer higher rates if it goes the other way so it’s essentially a forecast-oriented decision that is based on your ability to anticipate interest rates fluctuations in the future.
- Board Rate Mortgage
This type operates with interest rates defined by the bank at their discretion. They are ideal because the set rate will be stable despite any fluctuations in the standard interest rates. The downside is that the interest rates are not exactly disclosed to the borrower and are dependent solely on the bank’s discretion.
- Fixed Deposit-Pegged Mortgage
The interest rates for this type of mortgage are again determined by the bank at its discretion. Beneficiaries enjoy a stable and fully disclosed rate that is not affected by any economic variations. The rate is however controlled by the bank and remains constant even if standard rates fall.
In conclusion, property acquisitions in Singapore are very possible due to the ease and availability of mortgage loan facilities for foreigners. It is however much more advisable to obtain a mortgage loan In-Principle-Approval (IPA) first before buying. This will guarantee the support of the financing bank or institute for the purchase of the property. Such an arrangement is much safer than purchasing blindly without getting the IPA first because if the loan fails to come through as planned for one reason or another, you stand to lose your entire down-payment on the property. Be sure to deal with a trusted agent who can assist you all the way so that you can avoid all the common pitfalls and secure your new home effortlessly!