Almost everyone in Singapore has to make a significant financial commitment to purchasing a home at some point in their lives. Whether you are a single person or a newlywed couple purchasing a private home or an HDB apartment, you will require a home loan. Here’s everything you need to know concerning property loans in Singapore before you jump into the unknown.
Types of Home Loans in Singapore for new homes
In Singapore, two types of loans are available: financial institution loans, also referred to as bank loans, and the HDB Concessionary Loan, also known as the HDB loan.
HDB loan
Naturally, the HDB Concessionary Loan may only be used to purchase HDB apartments; therefore, at least one of the buyers must be a Singaporean.
For those who are seeking a consistent interest rate, the HDB loan is a great option. Young couples and other low-income homebuyers benefit from it as well.
This is so because HDB loans have 10% down payment requirements instead of bank loans’ 25% down payment requirements. Furthermore, you don’t need to have a lot of cash on hand because the down payment can be made using your CPF Ordinary Account.
Taking up an HDB loan has a few more benefits, such as being more forgiving of late payments and having no penalty for early return in full, in contrast to bank loans.
However, the interest rate needs to be the primary factor to consider account. The interest rate on HDB loans is always set to be 0.1% higher than the interest rate on CPF ordinary accounts. Currently, an HDB loan has an interest rate of 2.6%. has continued at this pace for nearly twenty years. It is now seen as costly in comparison to bank loans, nevertheless.
To qualify for an HDB loan, your family’s monthly income must not exceed $12,000, you must have held any private property during the previous 30 months, and you cannot have taken out two or more HDB housing loans.
Certain criteria determine how much you can borrow with an HDB loan. The maximum length of the HDB loan is 25 years, or until the age of 65, whichever comes first. Repayment must not exceed thirty per cent of your gross monthly earnings. The Mortgage Servicing Ratio, or MSR, is the term for this. We’ll discuss it in greater detail later.
Bank loans
Private homes and HDB apartments can both be financed with bank loans. Since taking out a loan is a long-term commitment, you should select the bank loan that best fits your financial circumstances out of the various options available.
A house loan with a fixed rate has an interest rate that stays the same for a predetermined amount of time, usually one or two years. Your monthly payment amount remains the same during this period because there are no changes to the interest rate. However, since you are paying for the rate’s stability, fixed rates are usually a little more expensive than other rates. However, fixed rates change from fixed to floating after two to three years.
A house loan with a variable rate has an interest rate that is determined by the swap offer rate, or SOR, or the Singapore Interbank Offer Rate. There is a degree of transparency because these rates are known to the general population.
Home loan packages that are tied to a bank’s fixed savings account interest rates are known as fixed deposit-linked rates, and they are a relatively recent invention. They should not have the volatility of SIBOR floating rates but be transparent and inexpensive.
Equity loan (“second mortgage”)
Sometimes you can ask for what is known as a “second mortgage.” This is also known as an “equity term loan,” or an equity loan. This is when you borrow money, using the paid-off portion of your property as collateral.
It’s a great way to get a loan with a relatively low interest rate, but it only works if your property’s appreciated in value or if you’ve already paid off a substantial part of your home loan.
Do note that only private properties are eligible for equity loans. You can’t get an equity loan for an HDB flat. Many financial institutions like DBS offer best home loans on reasonable rate of interest.