When you think of all the investment you are likely to make in your life, the most expensive, without a doubt, is the money you invest in buying your home. It also goes without saying that not all of us (read most of us) have enough money to just buy a home when we feel like it.
It is a decision that takes months of deliberation. And finding the best home loan is probably the second most important consideration – the first being finding the right home itself.
And we’re here to help. Read on.
Why do you need the best home loan?
Well, seeing that you will take at least two to three decades of your life to repay the loan, you should look for a loan with favourable terms and conditions and interest rates.
It’s not just the money though. You also need to think about the type of home you are planning to buy and which loan would work best. For instance, if you plan to purchase a Housing and Development Board (HDB) flat, you need to consider if you should take an HDB loan or a bank loan. If this is your second property, you need to figure out the loan amount you are eligible for. You also need to take into consideration payments such as the down payment, and how much loan amount can be sanctioned.
Suggested reading: 5 Questions to Ask Before Purchasing a House
As you can see, choosing the right home loan is no easy task. But we have decided to simplify the process as much as we can with our guide. This is a good starting point to figure out what you need to know with regards to home loans in Singapore.
Let’s start with understanding the differences between HDB Loans and Bank Loans
What is a Housing and Development Board Loan?
HDB loans are home loans provided solely for the purchase of HDB flats. Unlike bank loans, HDB loans can be used to finance up to 90% of the value of your flat. Currently, the interest rate for HDB loans is 2.6% p.a.
The amount you end up receiving is based on multiple factors such as your age, your financial situation, the lease remaining on the property you intend to purchase and your income. Another benefit of an HDB loan is that you can also use savings from your CPF Ordinary Account (OA) to finance certain payments that need to be made such as stamp registration and other fees.
How is this different from a bank home loan?
In comparison to HDB loans, bank loans tend to have fewer restrictions in terms of eligibility. For instance, if you are applying for an HDB loan, at least one of the applicants needs to be a Singapore citizen. With bank loans, however, citizens and Permanent Residents can apply alike.
Unlike HDB loans (which are pegged to the interest rate on your CPF OA account), bank loans are pegged to the current Singapore Interbank Offered Rate (SIBOR) or Swap Offer Rate (SOR). As a result, the interest you pay can be higher or lower than the amount of interest you pay for HDB loans.
When it comes to being able to use your CPF funds to make the down payment for your HDB property, the entire 10% can be paid from your CPF savings if you take a home loan from HDB. So, you can get a loan of up to 90% of the value of the property.
The other difference is that banks may enforce penalties on early repayment and late repayments on their loan. But HDB loans have no penalties for early repayment of the loan and are more lenient when it comes to late payment fees.
If you decide to take up an HDB loan and not a bank loan, then you can stop reading here. But if you plan to take a bank loan or want to know if an HDB loan is indeed the right choice, then read on since we will be dealing with home loans from banks in the subsequent sections.
What you should know before applying for a home loan
Before you start researching on the different home loans available in Singapore, there are certain terms whose meaning and significance you need to understand.
- TDSR: The Total Debt Servicing Ratio is a monetary framework that limits the amount you can borrow and the amount a bank can lend you. TDSR is calculated by dividing your monthly debt payments by your monthly income. Currently, this ratio is set at 60%. This means that at any point in time, your total debt payments cannot exceed 60% of your gross monthly income. This ratio determines how much money a bank is willing to lend you when you apply for a home loan.
- Approval in Principle (AIP): An Approval in Principle is basically an agreement that is made with a bank. The agreement states that after checking your credit history and based on your financial standing, a particular bank has approved your application for a home loan. So, the bank hasn’t granted you the loan, but they will extend the loan to you when you need it.
What happens without an AIP? Well, you can still buy a house. But without an AIP, if a bank fails to approve your loan applications, you stand to lose the booking fee you have paid.
- The meaning of terms related to buying a property: While researching home loans you are bound to come across certain terms that may make you scratch your head and reach out to your friend Google. Now, you don’t have to, because we’ve got you covered!
- Valuation limit: This is either the current value of the property or the price you have paid (or will pay for the property), whichever is lower.
- Loan to Value (LTV): This ratio compares the amount you borrow to the value of the property you are looking to buy. So, if your loan amount is S$300,000 and the property is priced at S$500,000, your LTV is 60%.
- CSC and TOP: Certificate of Statutory Completion and Temporary Occupation Permit are two certificates that are issued when a building is ready to be occupied.
- ABSD: The Additional Buyer’s Stamp Duty is a tax that is levied when you purchase an additional home.
- Lock in period: As the name suggests, during this period (usually around 1 to 3 years) you cannot refinance or settle your home loan with the same bank or another bank without incurring a penalty. Usually, this amount is around 1.5% of the loan amount.
- Board rate: This rate is an index that banks use to determine the interest rate on your home loan. As mentioned earlier, the two indices that banks use are SIBOR and SOR.
- SIBOR: This is the rate at which banks in Singapore lend and borrow unsecured funds from each other.
- SOR: This index is an extension of SIBOR and is based on the exchange rate between SGD and USD.
And here’s what you must keep in mind to ensure you choose the right home loan
- You should, of course, start by comparing home loans offered by different banks to find one that best suits your needs and your repayment capacity.
- you wish to apply for a fixed rate home loan or a floating rate home loan. A fixed rate home loan typically has a higher rate of interest when compared to a floating rate home loan. As mentioned earlier, floating rates are pegged to indices such as SIBOR and SOR. Some floating rate loans are also pegged to fixed deposit interest rates.
Rates pegged to fixed deposits are:
- FHR: If you take a home loan from DBS, the interest rate is pegged to FHR8 or the current interest rate for DBS’ 8-month Singapore Dollar Fixed Deposit for amounts between S$1,000 and S$9,999. Current FHR8 rate: 0.675% p.a.
- OCBC mortgage board rates: This bank managed rate varies for different packages. These rates can be changed at any time with the bank giving you 30 days’ notice. The good part is that if you find the interest too high, you can switch to another OCBC package without incurring any fines.
Current OCBC mortgage board rate: 2.30% p.a. for the first 3 years.
- FDR: If you plan on taking your home loan from the Standard Chartered Bank, the interest rate you end up paying will be linked to a 36-month Singapore Dollar Fixed Deposit. Current FDR rate: 0.97% p.a. + loan margin
- MR: Last year, UOB did away with their fixed deposit linked rates and adopted a different board rate to which home loan interest rates are pegged. This rate is known as the Market Rate. Current MR: 0.85% p.a.
- Make sure you read the terms and conditions and take a look at the fines you may have to pay for early repayment as well as late penalties.
- Decide the type of home you are looking to buy – a new HDB flat, a resale flat, BTO, or private property.
Suggested reading: 4 Ways to Avoid Costly Mistakes Often Made by First-Time Home Buyers
Here are the best fixed and floating home loans currently available in Singapore
Best fixed rate home loans
Fixed rate packages provide stability since you know just how much you will be paying as interest each month. Moreover, with a fixed home loan package, you are less likely to be affected by sudden increases in index rates.
Scroll to the right for more information
|DBS||OCBC||Citi||Hong Leong Finance||HSBC|
|Lock-in period||2 years||2 years||2 years||
2-year and 3-year fixed package
|Retail, Premier, and Advance customers can contact HSBC for non-promotional interest rates and packages.|
|2-year fixed package (Promotional rates valid until 31 March 2019)||3-year fixed package (Promotional rates valid until 31 March 2019)|
|Interest rate (Y1)||2.60% p.a.||2.68% p.a.||2.60% p.a.||2.18% p.a. and 2.50% p.a.||2.70% p.a.||2.75% p.a.||2.90% p.a.||2.95% p.a.|
|Interest rate (Y2)||2.60% p.a.||2.68% p.a.||2.60% p.a.||2.38% p.a. and 2.60% p.a.||2.70% p.a.||2.75% p.a.||2.90% p.a.||2.95% p.a.|
|Interest rate (Y3)||FHR8 + 1.925% p.a.||Pegged to MBR of 1.55% p.a.||1M SIBOR + 0.90% p.a.||HHR – 2.07 and 2.75From Y4 onwards: HHR – 1.65||SIBOR + 0.75% p.a.Y4 onwards: SIBOR + 1% p.a.||SIBOR + 0.75% p.a.
Y4 onwards: SIBOR + 1% p.a.
Y4 onwards: SIBOR + 1% p.a.
Y4 onwards: SIBOR + 1% p.a.
|Minimum loan amount||S$300,000||HDB: S$200,000
Private property: S$300,000
|Type of property||Private property, Executive condominium and HDB flat||HDB property and Private property||Completed HDB properties, and Completed private properties||HDB properties and Private properties||HDB properties and Private properties||HDB properties and Private properties|
|Promotion (if any)||Apply online by 14 February 2019 and get Ang Bao of S$288||N.A.||Get shopping vouchers up to S$1,000 on a minimum loan amount of S$500,000*||2 years fixed rate as low as 2.18% p.a. and dining vouchers worth S$200 for online applications (min. loan amount: S$150,000)++||Get up to S$600 worth shopping vouchers when you refer other customers to take up a home loan from HSBC (valid until 30 June 2019)||Get up to S$600 worth shopping vouchers when you refer other customers to take up a home loan from HSBC (valid until 30 June 2019)|
|Cancellation fee||If the loan is rejected after acceptance of offer letter: 0.75% of the undisbursed amount||As mentioned in the letter of offer||–||–||–||–|
* Valid on online applications until 31 March 2019 and acceptance of the letter of offer by 15 April 2019
++ Valid until 30 June 2019 and for HDB loans only
If you are looking for a long period of stability, you may consider getting Hong Leong Finance’s 3-year fixed interest home loan package. This way, at least for the first 3 years, you know the amount you have to repay in terms of interest.
If you are looking to apply for a 2-year package (and soon) then consider taking advantage of Hong Leong’s promotional rate.
We know that finalising on a home that you wish to buy isn’t something that can be done overnight, so you could consider applying for DBS’ fixed rate home loan package since the loan amount can be used to purchase almost all types of residential properties.
Best floating rate home loans in Singapore
Scroll to the right for more information
|Lock-in period||2 years||–||–||2 years|
|Interest rate (Y1)||Premier||Advance||Personal Banking|
|FHR8 + 1.45% p.a.||SIBOR + 0.80% p.a.||SIBOR + 0.85% p.a.||SIBOR + 1% p.a.||3M SIBOR + 0.35% p.a.||1M SIBOR + 0.30% p.a.|
|Interest rate (Y2)||FHR8 + 1.45% p.a.||SIBOR + 0.80% p.a.||SIBOR + 0.85% p.a.||SIBOR + 1% p.a.||3M SIBOR + 0.45% p.a.||1M SIBOR + 0.30% p.a.|
|Interest rate post Y2||FHR8 + 1.45% p.a.||Y3: SIBOR + 0.80%
p.a.Y4 onwards: SIBOR + 1% p.a.
|Y3: SIBOR + 0.85% p.a.
Y4 onwards: SIBOR + 1% p.a.
|Y3: SIBOR + 1% p.a.
Y4 onwards: SIBOR + 1% p.a.
|Y3: 3M SIBOR + 0.50% p.a.
|Y3: 1M SIBOR + 0.40% p.a.
|Minimum loan amount||S$300,000||S$200,000||HDB: S$200,000
Private property: S$300,000
|Type of property||HDB properties, Private properties and Executive condominium||HDB properties and Private properties||HDB properties and Private properties||Completed HDB properties and Completed private properties|
|Promotion (if any)||Apply online by 14 February 2019 and get Ang Bao of S$288||Promotional interest rates starting from SIBOR + 0.25% p.a. for Advance and Premier banking customers (valid until 31 March 2019)||–||Get shopping vouchers up to S$1,000 on a minimum loan amount of S$500,000*|
* Valid on online applications until 31 March 2019 and acceptance of letter of offer by 15 April 2019
It isn’t easy to determine which loan is the best when it comes to floating interest rates since they are all pegged to different indices. Even if you decide to compare only loans pegged to SIBOR, they are pegged to different months. For instance, Citi’s interest rates are pegged to 1-month SIBOR rates, while OCBC pegs them to 3-month SIBOR rates.
In such cases, you will have to first determine the type of property you are looking for and see which banks are willing to lend you a loan to purchase that property.
Once that is done, check if you meet the eligibility criteria of the bank.
Finally, always do a trend analysis of how SIBOR rates or fixed deposit rates have changed over the course of a few years and how it is predicted to change. Once you do this, you will more or less have an idea as to which loan is the best for you.
Suggested reading: 10 Money Conversations Every Couple Should Have
Decided the type of loan? It’s only half the battle won. Here’s the next bit:
If you took a good look (or a fleeting glance) of these tables, you would have noticed that while some banks will provide you with a home loan to cover any type of home you wish to purchase (be it an HDB flat, a property that is yet to be completed, or an executive condominium), other banks are very specific about the kind of properties for which they are willing to lend money.
What does this mean for you?
Well, think of it this way. If you decide to purchase a private property that is still under construction banks may be unwilling to lend to you.
Even if you decide to purchase a build-to-order (BTO) flat, you may find it a little difficult to get a letter of approval from the bank since the construction of BTO properties begin only when 65% to 70% of the flats have been booked.
For such building under construction (BUC) properties and BTO properties, you could try approaching the following banks for a loan:
Banks which provide home loans for BUCs:
- UOB: The bank provides a floating rate loan pegged to its board rate to homeowners who are looking to buy a BUC.
- Standard Chartered Bank: A floating rate home loan pegged to Singapore Dollar Fixed Deposit rates.
- DBS: Floating rate home loan which is pegged to FHR8.
Check out: Top 5 Things You Need to Know About En Bloc
Banks which lend for BTOs:
- DBS: A floating rate home loan with no lock-in period and pegged to FHR8.
- OCBC: Floating rate home loan. The interest rate is pegged to OCBC’s board rate.
- Standard Chartered Bank: Floating rate home loan which is pegged to Standard Chartered’s FD rates.
What all of this boils down to
At the end of the day, one of the most important things to keep in mind when it comes to home loans (and we can’t stress this enough) is that a home loan that is affordable need not necessarily be the right one for you.
This is because a loan with a low rate of interest may not match your personal goals. Let’s say that you plan to start your own business in the next two to three years. At present, you decide to take a loan that is pegged to SIBOR to buy your home. It’s the cheapest home loan you can find at present and you hope that it will remain so. But, what if SIBOR rates increase over the years? In such cases, you will be in a situation wherein you may not be sure of how much you will be earning and will have to deal with a rise in instalments. So, you can see how this decision does not match your personal goals.
Then there is also the possibility that you may want to refinance your loan in the future. Maybe you have found another package whose terms are more attractive. In such cases, you should make sure that your current home loan doesn’t charge you too much to refinance in terms of early repayment of the loan.
These are just two instances where getting the cheapest loan may not be the best idea. There could be others.
Which is why, before you apply for a home loan, make sure you do your research and get one that suits you. This may be the cheapest or it may not. But it doesn’t matter since it is the right one for you!
So, go ahead and all the best finding that house you want to make into a home!
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