Whether you're considering a modest HDB flat or a high-end private property, this guide will help you navigate the complex world of property financing in Singapore.
If you are planning to buy a house in the world's priciest city, you will likely need a housing loan (also referred to as a mortgage loan or home loan) to finance the purchase. In this guide, we'll discuss the basics of housing loans, the various home loan packages available, and other essential information you should be aware of when financing your property acquisition.
Before anything else, let's assess your affordability. To do this, we need to understand three essential concepts.
The Mortgage Servicing Ratio (MSR) represents the percentage of your monthly gross income allocated to your mortgage repayment. MSR applies only to HDB and executive condominium (EC) purchases. Currently, the MSR is capped at 30%, meaning that if your monthly income is $4,000, only $1,200 can be used for mortgage payments. While this may seem restrictive, it's a reasonable approach that ensures homebuyers commit only to what they can afford.
Many homebuyers wonder if MSR is the same as the Total Debt Servicing Ratio (TDSR). They are not the same – TDSR stipulates that a borrower can spend only up to 55% of their gross monthly income on debt repayments. These repayments include all types of loans, such as mortgages, car loans, credit card bills, and personal loans. MSR applies only to HDB flats and EC purchases, while TDSR is relevant for private property purchases.
The loan-to-value (LTV) ratio determines the maximum amount a property buyer can borrow, whether from HDB or a bank. LTV ratios serve as a safeguard against excessive borrowing by homebuyers. For HDB Concessionary Loans, which apply to BTO, SBF, ROF, and resale flat purchases, the maximum LTV is 90%. This means you can borrow up to 90% of the property value or purchase price, whichever is lower.
For bank loans, the maximum LTV is 75% for the first loan, provided there are no outstanding home loans. Out of the remaining 25%, 5% must be paid in cash, and the remaining 20% can be paid using a mix of cash or CPF-OA savings.
After you have understood the three concepts, it is time for you to put your affordability to the test. Simply key in the few details and it will let you know the maximum value of the property you can afford.
Get your dream home financed of S$200,000 with the most competitive home loan rates in Singapore based on a loan term of 25 years, starting from as low as
After determining your affordability, it's time to decide on the property type you want to purchase.
For HDB flats, you can opt for either an HDB Concessionary Housing Loan or a bank loan, whether you're buying a BTO or resale property. For EC or private properties, only bank loans are available. HDB offers eligible flat buyers a housing loan with a concessionary interest rate, set at 0.1% above the current CPF interest rate. The prevailing HDB interest rate is 2.60% p.a. Although HDB loan interest rates are generally higher than most banks' rates, particularly for floating rate packages, the maximum LTV ratio of 90% makes the downpayment more affordable.
If you plan to apply for an HDB BTO or resale loan, you'll first need an HDB Loan Eligibility letter. This document confirms your eligibility for a concessionary loan from HDB and provides information about the maximum loan amount, monthly installments, and repayment period. The HLE is valid for six months from the date of issue and will only be reassessed if the borrower's financial or family situation changes.
HDB evaluates loan eligibility based on three criteria: age, annual gross income, and financial position. For BTO flat purchases, an HLE letter is required before booking a new flat and signing the Option to Purchase (OTP).
You can apply for an HLE letter through HDB e-service using your SingPass to log in. Upload the necessary documents in PDF or JPG format, with a file size limit of 5MB each. Although you can save your application as a draft for up to 30 days, it will be processed within 14 days after submitting a complete set of documents. You can check your HLE application status by logging in to My HDBPage under My Flat > Application Status > HLE.
If you don't qualify for an HDB concessionary loan, bank loans are the only alternative. However, the downside is the higher down payment of 25% required, with 5% in cash.
For private properties, banks are the only available option,and a 25% down payment is required for all purchases. When considering bank loans, a frequently asked question is:
There is no definitive answer, as each rate type addresses different concerns. If you prefer stability and predictability in your interest rates, a fixed rate may be suitable. However, if you believe interest rates might decrease in the near future, you can opt for a floating rate to potentially benefit from lower rates. Keep in mind that rates can also increase, which is a risk you must be willing to accept.
Fixed rate:
A fixed interest rate means that the interest rate on your home loan remains constant for the next 2 to 5 years, depending on your lock-in period. As a result, your monthly instalments will be consistent until the lock-in period ends, barring any changes from your bank. Fixed interest rates provide better cash flow management due to fixed payments. However, once the lock-in period ends, your home loan interest rate may increase or switch to a floating rate. In this case, you should contact your bank to reprice or refinance to a lower interest rate.
Floating rate:
Floating interest rates come in two main forms in Singapore: board rates and SORA rates. Both are variable interest rates, meaning they can fluctuate at any time depending on market conditions and volatility. Banks determine board rates, while the Monetary Authority of Singapore (MAS) publishes SORA rates daily based on market data. The most common variable rate reference is the 3-month compounded SORA rate.
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A Building Under Construction (BUC) loan is a specific type of loan designed to finance the purchase of a property that is still being built. Key affordability ratios, such as TDSR (55%) and LTV (25%), still apply. However, payments are made progressively based on the property's completion status. As a result, the full loan amount might only be drawn 4-5 years later, depending on the Temporary Occupation Permit (TOP) date. This means that during the initial years, your instalment amount could be significantly lower than if you were purchasing a fully constructed or resale property, where the loan would need to be drawn down entirely from the beginning.
There is no definitive answer, as each rate type addresses different concerns. If you prefer stability and predictability in your interest rates, a fixed rate may be suitable. However, if you believe interest rates might decrease in the near future, you can opt for a floating rate to potentially benefit from lower rates. Keep in mind that rates can also increase, which is a risk you must be willing to accept.
Fixed rate:
A fixed interest rate means that the interest rate on your home loan remains constant for the next 2 to 5 years, depending on your lock-in period. As a result, your monthly installments will be consistent until the lock-in period ends, barring any changes from your bank. Fixed interest rates provide better cash flow management due to fixed payments. However, once the lock-in period ends, your home loan interest rate may increase or switch to a floating rate. In this case, you should contact your bank to reprice or refinance to a lower interest rate.
Floating rate:
Floating interest rates come in two main forms in Singapore: board rates and SORA rates. Both are variable interest rates, meaning they can fluctuate at any time depending on market conditions and volatility. Banks determine board rates, while the Monetary Authority of Singapore (MAS) publishes SORA rates daily based on market data. The most common variable rate reference is the 3-month compounded SORA rate.
The Progressive Payment Scheme (PPS) applies to private properties that are still under construction, also known as Buildings Under Construction (BUC). This scheme involves making instalment payments (usually 5-10% of the property's purchase price) as the construction reaches specific milestones. In contrast, for resale condos, a 25% down payment is required, and monthly repayments begin immediately.
Initially, you need to pay a 5% booking fee in cash to secure the OTP.
After obtaining the OTP, the developer must provide you with the Sale & Purchase Agreement (S&PA) within 14 days from the date of the Option.
Note: The OTP expires three weeks after the S&PA is delivered and must be exercised within that timeframe if you choose to buy the property.
For more information: 5 Steps Before Exercising the OTP
If the OTP is not exercised before its expiration, the developer is entitled to keep 25% of the booking fee. The remaining 75% of the booking fee will be refunded within four weeks.
Upon signing the S&PA, you need to pay a 15% down payment within eight weeks from the Option date. This payment can be made using cash or your CPF Ordinary Account (OA).
At this stage, you have paid a 5% booking fee + 15% down payment = 20% of the purchase price. You can now obtain a 75% bank loan and pay any required stamp duties, including Buyer's Stamp Duty (BSD) or Additional Buyer's Stamp Duty (ABSD).
With the BUC loan, funds are disbursed from your home loan as follows, and buyers make monthly payments that gradually increase at each stage.
You may wonder why you need an approved BUC loan now when your funding requirement might come later during the later stages of repayment. There are three reasons:
BUC loans are typically variable rate loans committed to the full loan amount. This means that if you have signed for a S$1 million loan, the bank will fulfil its obligation throughout the PPS, provided you make timely instalment payments.
There are several features to consider:
Conversions
These are often offered to give you the flexibility to convert your loan packages to the latest promotional rates or a fixed rate after TOP. This is typically offered as promotional rates usually last for the first 3 years of the loan and revert to a non-promotional rate from the 4th year onwards. Since you may not have reached your completion date by the 4th year and won't be eligible for refinancing, converting to a new package with a lower promotional rate is advantageous. Additionally, at TOP, you would be eligible for fixed-rate packages, and having the option to convert to one would be beneficial. Most banks usually offer two conversion opportunities throughout the loan.
Lock-in Period
BUC loans generally come with no lock-in period, which means borrowers have the flexibility to make partial or full payments on their outstanding loans.
Cancellation Fees
Cancellation fees typically range from 0.75-1.5% for all property types. For a BUC unit, a cancellation fee will be charged if there is any undisbursed amount.
Upon the issue of the Temporary Occupation Permit (TOP), 25% of the purchase price will be disbursed by the bank. The final 15% will be paid out in the following sequence: 2%, 8%, and then 5% if the title is issued before Certificate of Statutory Completion (CSC); or 8%, 5%, and then 2% if the CSC is issued before the title.
Now that you're familiar with the various HDB and bank home mortgage loans in Singapore, you're ready to compare, find the best home loan, apply for your IPA (In-Principle Approval), and apply for your home loan. It might seem like a lot of work, but with the help of our mortgage specialists (for free!), you can easily manage all these tasks.
Applying for a home loan:
First, compare the latest home loan interest rates and packages on the market. Our fully automated assistant via WhatsApp, guides you through a series of questions tailored to your mortgage requirements and gives you a list of the best home loans tailored for you.
While, our user-friendly online application makes the process hassle-free, our dedicated Mortgage Loan Officers are ready to assist you every step of the way. They're ready to help with any questions you may have and provide unbiased advice on your application. If you're uncertain about terms or new to the home loan process, don't hesitate to set up a one-on-one session for additional support.
After securing your IPA, proceed with your home loan application. With the support of our mortgage specialists, your application process can be completed within 2 working days, although some foreign banks may take up to a week for approval.
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Mortgage brokers assist you in comparing home loan offers from all Singaporean banks and financial institutions. We are aware of the most affordable fixed and SORA home loan rates. The best housing loan rates in Singapore may be found right here if you're seeking for them. Lendingpot also has access to exclusive rates and packages that are not accessible to the general public as a result of our long-standing connections with our partners. We also collaborate with trustworthy banks and legal companies, to whom we entrust our clients with. They make sure the procedure for applying for a house loan is quick and easy. The best part is that our service is always free and we share rebates with our clients.
The fixed rate is safer and more reliable since it won't move in response to market changes. It is often higher than the floating rate, though, and if the market is down, you run the danger of getting locked in at a high rate. The SORA variable or floating rate is more unstable and subject to fluctuation. Recent COVID-19 epidemic has caused floating rates to reach a new low. They have however recovered above pre-covid levels. Therefore there is a risk to either rate choice. Simply said, there is no absolute better option. Your future expectations, risk tolerance, and anticipated market swings will all play a role in determining whether a fixed rate or variable rate is better for you.
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