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But, it may be at least five years down the road before interest rates take a hike. Any home loan we take involves a period of, say 10 - 35 years. Therefore, we need to take a long term view. If, for instance, we expect the home loan interest rate to be hovering at the present rate for the next few years, it may be a good idea to commit ourselves to the market rate instead of tying ourselves to a fixed rate for the first few years, as some banks have offered to let us do.

However, if the bank offers a fixed interest rate for the entire duration of the loan, it may be best to take up the offer because the home loan rate offered is likely to be the lowest vis-a-vis the rate to be charged in the home loan market in the years ahead, for bank interest rates will be likely to go up, instead of come down. DBS Bank offers the following:

1st year fixed at 4% p.a.

2nd year fixed at 5% p.a.

3 - 5 years fixed at 5% p.a.

6 - 35 years fixed at 5.5% p.a.

Their rates are worth taking a second look. Remember - bank interest rates in all likelihood will rise as savings interest rates are at their lowest in years. (in the 80's - savings rate hovered around 12%p.a.) So, it is prudent to get a fixed home loan interest rate. Our salaries may go up, but so will our commitments, such as that second baby or college education for the first child, and we do not need a shock from an explosion in home loan rates, say ten years down the road.

For your information

OCBC's rate for the sixth year and above is pegged at prime lending rate + 0.50%. This means, when market interest rates go up, so will your home loan interest rates.

Having settled on the interest rate factor, we now take a look at the maths of a home loan. Get an Internet home loan calculator, such as iproperty.com.sg's eloan (click to view the loan screen), to help us with the calculation. Iproperty offers two calculators: Loan Calculator and Get Quotes. We have to start with Get Quotes first!

On the Get Quotes screen, we just need to feed some details, such as:

Purchase Price: This is the price the buyer wants to sell at.

Cash on hand: This is the cash amount you can come out with.

Cash from sale of existing flat/house: Fill in only if you expect to sell an existing home and need to use the proceeds.

TOTAL CASH USED: This is worked out automatically. It is the amount of cash you are using for the purchase of the flat/house.

CPF in ordinary account: You can use all the money in your ordinary account. If you have already withdrawn some for CPF investments and want to sell off the investments and put back the money for use in the purchase, you may include that amount here (for the calculation purpose).

CPF from sale of existing flat/house: If you are selling your existing home, whatever CPF money used earlier in the purchase of your existing home will be placed back in your CPF and you may utilise that amount in full.

TOTAL CPF USED: Worked out automatically.

Monthly CPF deduction: You can use your CPF contributions to pay the monthly instalments when they fall due. Key in your own CPF contribution amount. If there is a joint applicant, key in that person's amount also. You can get the information from your payslip. If you can't get hold of it, use this calculation: gross salary for this month x 32% (this percentage may change with time, so those reading this article in the future should check the latest employer + employee contribution rate in our website's CPF section)

Housing Loan required: Worked out automatically

Once you get hold of the Housing Loan amount required, proceed to iproperty's Loan Calculator. This is the part where you can find out whether you can afford that new home at your present salary. Feed in the details as follows:

Your age: How old you will be at your next birthday, NOT last birthday. So, if your birthday has just passed, it certainly isn't your next birthday.

Co-borrower's age: How old your spouse will be at his/her next birthday.

**Here, I need to point out that the tenure (length of loan period) depends very much on the younger party's next birthday (for joint home loans). The maximum tenure of a home loan is the difference between 62 years (retirement age) and the younger party's age next birthday.

Therefore, if , say the main borrower is 42 (next birthday) and the spouse is 30 (next birthday), the maximum tenure of the loan is 62 - 30 = 32 years.

Gross monthly income: Your monthly pay + overtime + allowances (remember, it helps to tell the banker your allowances)

Gross monthly expenses: Your commitments, such as car loans and other loans. Generally, the bank nowadays will not write to other banks to find this out. They rely on you to tell them on good faith. Remember - high commitments equals less chances of getting the loan approved.

Cash available: Worked out automatically.

Interest rate: Nowadays, rates vary within the loan tenure/period. This is just a preliminary calculation, so use the first year's rate.

Loan amount: Key in the Housing Loan Required amount which you obtained from the Get Quotes screen.

Monthly payment: Worked out automatically. This is the instalment amount for the home loan. Remember - it is just a preliminary calculation, so give some leeway for errors and for different methods used by different banks. Look at the amount and ask yourself this:

Are you comfortable paying out this amount every month? It is not just for two or three years, but for tens of years! Of course, our salaries will usually rise with time, but don't forget, so will our commitments. You are probably the best person to decide, NOT your banker. If you are comfortable, by all means go ahead and get the loan. If not, look around for another more affordable new home.

The Internet has certainly made things easier for all of us. No longer do we need to impose on the banker every time we need to work out the maths of a home loan. We just need to log on to the Internet anytime 24 hours a day and do a little legwork scouting around for our new home.

Next week, we will take a look at bridging loans for our new home as well as the Pre-Approved Home Loan concept.

If you have any comments or questions, please e-mail us at editor@getforme.com .

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