8 ways to make your home loan more affordable

8 ways to make your home loan more affordable

NAV TL;DR

If you don't have time to read through the whole article, you can check out our short version below.

  • Refinance or reprice your mortgage loan to achieve savings but do a cost-benefit analysis first.
  • Consider making a bigger down payment at the start to reduce instalment amount and save on overall interest payable.
  • Mortgage insurance will come in handy in the event of the insured's death, terminal illness or permanent disability.

Handling your mortgage loan repayments can be tough during a financial setback or when times are hard. Affordability is key for big-ticket purchases like a property as it is likely to be your largest monthly expense.

Yet, keeping a roof over your family's head is a key priority. With prudent financial planning when buying a home, there are ways to keep your home loan repayments affordable.

Having a backup plan will help ensure that owning a home is something you can afford even during difficult financial situations. This can include having a stash of emergency savings that you can draw upon and automating a fixed amount to a savings account to be used for mortgage.
Let's take a look at the various ways to make your mortgage loan more affordable:

1. Making a bigger down payment

If you are buying a home, do consider making a bigger down payment at the start as it will help to reduce the total interest costs payable over the loan tenure. You will also benefit from lower monthly payments. However, do ensure you have sufficient emergency funds before making the down payment.

2. Use your windfalls to make partial repayments

Use your windfalls such as annual bonuses to make partial repayments on your home loans. This will reduce your outstanding principal and interest cost. Before you do that, check that you could make partial repayments without any penalty.

3. Using CPF funds instead of cash

To help finance your monthly mortgage payment, consider utilising your CPF funds instead of cash if you have a tight cashflow situation. However, before tapping on your CPF funds, do ensure that the amount in your CPF Ordinary Account is enough to pay your monthly mortgage loan instalment as it might be finite as well.

Once your financial health improves, consider switching back to using cash to pay your mortgage loan instalments, unless your investments can generate better returns than the CPF OA at 2.5% p.a.

4. Refinance or Repricing your home loan

  • Refinancing - Convert your HDB home loan at 2.6% per annum to a bank loan which could offer a lower interest rate due to the prevailing low interest rate environment. It also means you could switch one bank loan to another bank loan to achieve savings.
  • Repricing - Switch your current home loan package to another package in the same bank. The good thing about repricing is some banks offer a one-time repricing offer so you can switch to another package for free. But do take note that not all banks offer that so please check before switching.

    The process would be much faster, avoiding less paperwork and might be able to avoid incurring fees.

One example of a home loan is the DBS HDB loan which allows you to enjoy greater savings, protect against personal accident and sudden loss of income and additional interest earned.

Let's take for example, Andy who recently switched his CPF home loan to a DBS home loan that comes at a fixed rate of 1.4% p.a for a 5-year period.

$300,000 home loan Repayable over 20 years
  HDB Concessionary loan DBS HDB Loan
Interest rate 2.6% 1.4%
Monthly repayments S$1,604 S$1,433
Total Interest Payable S$96,262 S$86,032
Cost incurred NA ~$3000
Net savings - S$7,230

*interest rates are accurate at time of publishing

Do remember to decide wisely by weighing the pros and cons of your home loan before refinancing or repricing. Spend some time to think about whether a fixed or variable rate loan would fit your objective. Make sure that you are financing to lower your interest rate and not to increase your interest rate.

If you were to switch from a HDB home loan to a bank loan, it would be impossible to switch back to a HDB home loan if you have any second thoughts in the future, so give yourself some time to ponder over it.

In addition, by taking a loan from HDB, there won't have any early redemption penalties and fees. However, the fees related to a bank loan would vary from bank to bank, so it is vital to check if the potential interest savings are higher than the switching costs.

Look out for potential costs from your new mortgage as well, such as legal fees charged by the bank. On the bright side, some banks offer cash rebates to offset the legal and valuation fees involved in refinancing.

What to take note when choosing loan packages:

#1 Do your due diligence before you purchase.

#2 Calculate and compare the different loan packages such as DBS Super Reward Package or Super Saver package.

#3 Pick a suitable loan plan that suits your risk tolerance, affordability and financial planning goals – assess at your needs first instead of opting for the cheapest options straight away.
Ultimately, it boils down to what you really need so always remember to understand your goals. You can then make an informed decision and filter out options that don't suit you.

5. Downsize to a smaller house

Sell and downgrade to a smaller house so that you can have reduced or no mortgage to pay in comparison to your previous flat.

6. Renting out rooms or the whole house

Renting out part of your home if you have the extra space, will help a lot in earning extra income. But if it really comes to a situation where things get tough, you can consider moving in with your parents and renting out your entire house, to generate higher rental income.

7. Purchasing mortgage insurance

Mortgage insurance offers a lump sum of money to pay off the outstanding home loan in the event of the insured's death, terminal illness or permanent disability.

If you are servicing a home loan, it is important to purchase one as it protects your family in the event of an emergency, such as your unexpected death. When that happens, it might lead to your family members taking over the duty of paying the remaining mortgage, causing an additional financial burden from them.

Just like how you own health insurance to cover you and your loved ones against out-of-pocket hospital expenses, getting mortgage insurance will protect your loved ones from losing the roof over their heads.

8. Use a digital financial tool

Be financially prudent and ensure you have sufficient cash to pay for your debts monthly to avoid incurring a mountain of debts.

So always keep track of your expenses, plan your finance wisely and increase your awareness towards your cashflows.

The DBS NAV Planner is a useful digital financial planning and retirement advisory tool which will help you to categorise different expenses and plan for your financial wellness, including accumulating more to pay off your mortgage, in line with your goals.

Start Planning Now

Check out DBS MyHome to work out the sums and find a home that meets your budget and preferences. The best part – it cuts out the guesswork.

Start Planning

Alternatively, prepare yourself with an In-Principle Approval (IPA), so you have certainty on how much you could borrow for your home, allowing you to know your budget accurately.

Apply In-Principle Approval

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