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Monograph : Mortgages |
Contents |
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| (10) Repayment
Plans |
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| Banks offer a number of repayment
options to suit the different needs and budgets of their customers.
When deciding which plan to adopt, a mortgagor should take into
account the plan's total interest and other charges, the flexibility
of the plan and his existing and expected future income and
financial commitments. While mortgage plans offered by different
banks may vary in the details, the following are some of the
common plans available in the market. |
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1. |
Straight-line repayment
plan |
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The mortgagor pays regular instalments of a fixed
amount throughout the whole repayment term. The interest
portion in the repayment instalment will gradually decrease
while the principal portion will gradually increase
as the mortgage loan is repaid.
When there is an increase or reduction in the interest
rate, either the number of repayment instalments or
the amount of each repayment instalment will be adjusted
accordingly depending on the prior arrangement between
the mortgagor and the bank (see the Monthly Mortgage
Repayment Table in Appendix 1). |
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2. |
Plan with principal repayment holiday |
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A mortgagor can make repayment instalments that cover
the interest only but not the principal payment for part
of the repayment period, normally the initial two or three
years, and pay the principal and interest for the rest
of the repayment term on a straight-line basis. It should
be noted that the total amount of interest to be paid
on a mortgage loan with deferred principal repayment is
actually larger than that under a straight-line repayment
plan of the same loan tenor. Furthermore, the monthly
repayment instalments will be larger after the repayment
holiday. A borrower contemplating such a plan should take
these factors into consideration. |
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3. |
Progressive repayment plan |
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The amount of repayment instalments accelerates periodically,
for example, annually, to speed up repayment of the whole
loan, thereby saving the total amount of interest payable.
This plan is suitable for those who expect to have periodic
income increases and would like to have the whole loan
repaid over a shorter period. |
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4. |
Flexible prepayment and redrawal plan |
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This plan gives the mortgagor freedom to make prepayments,
each of a certain minimum amount, during the repayment
period in addition to his regular instalments to shorten
the tenor of his loan. If the mortgagor needs cash at
any time during the repayment tenor, he can request an
amount, usually not exceeding the amount he has prepaid,
to be redrawn and to form part of the mortgage loan and
the remaining tenor of the loan will be lengthened as
a result. |
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5. |
Bi-weekly repayment plan |
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Under a fortnightly repayment plan, the mortgage repayment
period can be shortened and savings on overall interest
may also be achieved. |
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