ST : Er, what is a mortgage?

Aug 15, 2010

FINANCIAL QUOTIENT

Er, what is a mortgage?

Where do you see this?

In articles about investment.

What does it mean?

A mortgage is a loan secured by real property. This property becomes the collateral. For instance, we use a mortgage loan to finance our purchases of HDB flats and private residential property. Depending on the criteria, you may be allowed by financial institutions to borrow up to 90 per cent of the property value. The balance can be paid in cash and from your Central Provident Fund savings.

Why is it important?

There is a variety of mortgage loans in the market. An example is the fixed rate mortgage loan, where the interest rate remains the same for a specified period. A home buyer may choose this if he wants to lock in the prevailing rates so that he need not be concerned with future fluctuations. Other types of loans include variable rate mortgage loans and loans pegged to, say, the Singapore Interbank Offered Rate. The latter is the rate at which banks lend to one another.

So you want to use the term. Just say...

'Home buyers who over-extended themselves with big mortgages because of the current low interest rates may get into financial difficulties when rates rise in the future.'

Lorna Tan