You will be able to find the clauses that take back a subsidy or charge a fee if your plans change.
Offer A's covering page had a box headed "Package benefits": legal fee subsidy, free valuation, no processing fee. Jason took it as a list of reasons to choose Offer A. Mei turned to the back of the letter, where a page of smaller print explained what happened to those benefits if they repaid or refinanced early, what it would cost to back out after accepting, and three conditions attached to the rate.
The clauses in that smaller print take money back, or charge it, when your plans change. This lesson shows you how to find them, so that a subsidy you're offered at the start doesn't turn into a bill you didn't see coming.
Banks often subsidise the costs of taking a home loan, such as legal fees for the conveyancing and the property valuation. That's real money, and it's worth having. But the subsidy usually comes with a clawback clause: if you repay the loan in full or refinance to another bank within a set period, you must pay the subsidy back.
The clawback period is often longer than the lock-in, which is easy to miss. You can reach the end of the lock-in, refinance without a prepayment penalty, and still owe the clawback.
In Jason and Mei's example, Offer A gave a S$2,000 legal fee subsidy and a free valuation, with a clawback if the loan was fully repaid or refinanced within three years, against a lock-in of two. So if they refinanced at month 30, they'd pay no penalty, since the lock-in had ended, but they'd repay the S$2,000 subsidy, plus the value of the valuation if the clause included it. Offer B had no subsidy, so it had no clawback either.
Write down each subsidy, its amount, the clawback period and what triggers it. Check whether a partial repayment triggers it, or only full repayment and refinancing.
Once you accept an offer, you've agreed to take the loan. If you then change your mind and don't draw it down, perhaps because the purchase falls through or you find a better offer, many letters charge a cancellation fee. It's often a percentage of the loan amount, and on a home loan that can be a large sum.
As an example only, a 1.5% cancellation fee on a S$600,000 loan would be S$9,000. The offer letter states the actual terms: the fee, how it's calculated, and whether it applies if the cancellation is caused by something outside your control.
That's why the whole letter gets read before you accept. The cancellation clause is the one that makes "accept now, keep looking" an expensive idea. Accept one offer when you've decided on it.
The rate in an offer letter often depends on conditions. If you don't meet them, or stop meeting them, the rate can change. Look for these three in particular.
Insurance. Property loans usually require fire insurance on the property. Some letters require you to buy it through a particular insurer or arrangement, or to name the bank on the policy, and yours will say which applies. Check the cost before you accept, and compare it with what you'd otherwise pay.
A linked account. Some packages require you to hold an account with the bank, credit your salary to it, or keep a minimum balance, and the rate may rise if you stop.
A minimum loan amount. Some packages are only offered above a certain loan size. If the loan amount ends up lower, for instance because the valuation comes in below the price or you put in more cash, the package may change. Jason and Mei's Offer B had a minimum loan size close to their planned borrowing, so they noted it in case the final figure came in lower.
Other conditions you may see are fees for converting to another of the bank's packages, and rules on how the rate is set if the benchmark stops being published. Read every condition, and if any is unclear, ask the bank to explain it in writing.
How much you're allowed to borrow, and what you can afford, are separate questions. Rules on loan size and borrowing limits are set by MAS and, for HDB flats, by HDB, and they're taught in Property & Mortgages. This module is about reading the offer you've been given once those questions are settled.
Their list for Offer A read: legal fee subsidy, S$2,000, and a free valuation, both clawed back if the loan was fully repaid or refinanced within three years. Cancellation fee, a stated percentage of the loan, if accepted and not drawn down. Fire insurance required, any insurer, bank named on the policy. No linked account. For Offer B: no subsidy, no clawback, a similar cancellation fee, a minimum loan amount, and a salary-crediting account required for the stated rate.
Each item had a period beside it. That's what turned the list into something they could compare, which they'll do in the next lesson. Your own offer letter has its version of this list, usually spread over several pages.
List every clawback, cancellation fee and condition in one loan offer and the period each applies for.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).