20-year floating-rate loan from United Overseas Bank

Like most other home loan shoppers, Mr Yao Shih Lien initially focused on comparing the interest rates for mortgage packages at different banks.

But he ended up with a 20-year floating-rate loan from United Overseas Bank (UOB) that ‘had a slightly higher interest rate’ than another package he had considered, one from a foreign bank.

The clincher for Mr Yao, 42, a division manager with land banking group Walton International, was the option of being able to make an early or partial repayment of the home loan at ‘less cost and penalties’.

The penalties for paying off a loan early can, in some cases, run into many tens of thousands of dollars - potentially dwarfing interest rate differences.

Being able to make an early or partial repayment is important to Mr Yao as he wants to keep the option of selling his investment property early, given the booming market, though his original goal was to earn rental income.

Three months ago, he bought an investment property for about $900,000: a freehold condo unit in a development being built at Tiong Bahru.

He might sell it before its scheduled completion in the middle of next year.

His first property was a condo in Upper Thomson, which still has $200,000 left on the loan.

To arrange the new loan, he used the services of mortgage consultancy www.HousingLoanSG.com as he did not want the hassle of sifting through the plethora of home loans on offer.

The early pay-off feature was a key attraction and he did not dwell on other details.

‘I didn’t get too technical about the choices. It’s a bit like choosing between mee siam or char kuay teow. I just preferred one over the other.’

The mortgage consultants helped him to shortlist three options with ‘competitive rates’ and a shorter lock-in period.

He opted for the UOB package for his $700,000 home loan, which amounted to almost 80 per cent of the total price he had paid.

‘I wanted to pay off the loan regularly before retirement, since I don’t want to be in too much debt in my 60s,’ explained Mr Yao.

He was also attracted to a free loan conversion feature, which gives him the flexibility to switch to a better package when the unit is completed.

Another factor that influenced Mr Yao’s decision was ‘how quickly the bank responded’. His top two choices were with banks that promptly plonked offers on the table within one to two days of his inquiries.

‘There was a third option with comparable interest rates, but the bank responded only after two weeks, so I just said: ‘Forget it’.’

Source: The Sunday Times, 24 June 2007