Housing Loan

From Financial Literacy Wiki

Housing Loans are taken by borrowers to finance the purchase of properties either for lodging or investment purposes. Housing loans tend to be large and banks often provide a margin of financing of up to 80% of the value of the house. For example, if the house is valued at $200,000, then the housing loan can be up to 80% of $200,000 which is $160,000. And since the loan is large, the banks would require you to pledge your house as a collateral for the loan. From 19 July 2005, borrowers can borrow up to 90% of property value.

The maturity of housing loans range from 1 to 35 years. The maximum loan period depends on the remaining working lifespan of the borrower. Most lenders require the borrower to amortise the loan completely before his retirement. Hence, the maximum loan period equals the borrower's retirement age less his current age. Most banks use either 60 or 65 years as the retirement age.

For housing loans, banks require you to repay the principal and interest in instalments. The loans can be quoted on a monthly-rest, annually-rest or flat basis. Most would be quoted on a monthly-rest basis, which means that interest in compounded on a monthly reducing principal.