Mortgage Glossary - Terminology
Table of Contents
Affordability
Amortization and Amortization Schedule
Appraisal (or Valuation)
Balance
Bank charges and fees
Bridge loan
Cancellation fees
Claw-back period
Collateral
Credit report
Default
Down payment
In-principle approval
Interest accrual period
Interest-only mortgage
Interest payment
Interest rate
Home insurance
Home Protection Scheme (HPS)
Legal fees
Letter of Offer (LO)
Loan amount
Loan-to-value ratio (LTV)
Loan term
Lock-in period (or loyalty period)
Monthly debt obligations
Mortgage
Mortgage insurance
Prepayment
Prepayment penalty
Primary residence
Principal
Property tax
Refinancing
Repricing
Required cash
Singapore Interbank Offered Rate (SIBOR)
Stamp duty
Underwriting
Affordability
Affordability refers to a person's capacity to afford a property. It is typically expressed as the maximum price a person could pay for a property, and it is a function of two things : How much money the person has available for the down payment? How much can the person borrow?
use our affordability calculator to see how much you can borrow
Amortization and Amortization Schedule
Amortization refers to the repayment of the loan principal from scheduled mortgage payments above the interest paid. The loan balance declines by the amount of the amortization. Amortization schedule is a table showing all the monthly mortgage payments broken down by interest and amortization, and with the remaining loan balance.
get full amortization schedule from our mortgage calculator
Appraisal (or Valuation)
Appraisal or valuation refers to the process of determining the market value of the property. The bank will require a valuation of the property to calculate how much loan they can give out (see Loan-to-value ratio).
Balance
Balance is the amount of original loan remaining to be paid. It is calculated from the original loan amount less all the principal payments so far.
Bank charges and fees
Banks typically charge a fee for processing the loan. However, in some cases the processing fees may be waived by the bank. Banks may also charge fees for late payments of monthly installments or early repayment of the loan.
Bridge loan
Bridge loan is a short-term loan that is taken for the period between the closing date of a new property and the closing date of an existing property. It is then paid back from the money received by selling the existing property.
Cancellation fees
Cancellation fee is the amount that the lender would charge if the borrower were to cancel the loan after accepting the loan (by accepting Letter of Offer), but before the money is given to the borrower.
Claw-back period
Claw-back period refers to the period that you cannot fully redeem you mortgage. Lenders typically offer discounts, subsidies and other perks, but they define a claw-back period during which you cannot redeem your loan without paying back the subsidies and perks.
Collateral
Collateral refers to the property that is used to get the mortgage. In case of default of payments, the courts may hand over the collateral to the lender.
Credit report
Credit report is a report provided by Consumer Credit Bureau containing information about the credit-worthiness of the person based on the person’s credit history.
Default
Default refers to the failure by the borrower to repay the monthly payments on their due date.
Down payment
Down payment is the difference between the purchase price of the property and the loan amount.
In-principle approval
In-principle approval is an approval from the lender based on the credit record and affordability of the borrower. It is not a binding document, and it is subject to the property valuation and other checks in the application process. In principle approval is typically valid for a month.
Interest accrual period
Interest accrual period is the period over which the interest due to the lender is calculated. It can be typically a year, a month or daily.
For example, an interest rate of 5% and a $100,000 loan.
If interest accrues yearly, it is calculated as 5% x $100k = $5000/year.
If it is monthly, 5%/12 x $100k = $417/month.
And daily, 5%/365 x $100k = $13.7/day.
The key here is to notice what balance is used to calculate the interest, and are you paying interest on interest. Most loans accrue interest monthly to match the payment schedule - in this case the interest is calculated on the remaining balance on each month.
Interest-only mortgage
As the name implies, there are no principal payments during the loan term and the loan balance remains unchanged. The monthly payments are only to pay for the interest.
see how much your monthly payments are lower with our interest-only mortgage calculator
Interest payment
The amount of interest paid every month. It is calculated for each month separately and depends on the remaining balance of the loan. In a typical mortgage, the interest payment portion is much larger at the beginning of the loan term as the balance is still high.
get details of interest payments from our mortgage calculator
Interest rate
Interest rate is the rate charged by the bank to lend the money. It is quoted on an annual basis, but may be accrued more frequently (see Interest accrual period above). In Singapore, mortgage interest rates may be based on SIBOR or banks' own internal lending rates - and is offered as a base rate plus a margin (e.g. SIBOR 12-months + 0.8%). Both the base rate and the margin may vary during the loan period (floating rate loans).
see how your payments can vary with different interest rates
Home insurance
Home insurance covers damage and losses to the physical structure of the property. The lenders may require the property owner to keep a valid home insurance at all times during the term of mortgage.
Home Protection Scheme (HPS)
If you are using your CPF savings to pay the monthly instalments of an HDB flat, you have to be insured under the Home Protection Scheme. HPS Calculator - https://www.cpf.gov.sg/cpf_trans/ssl/bo/hps_inp.asp
Legal fees
You need to hire a lawyer to do all the legal paperwork for your property purchase and taking up a mortgage. Some banks offer to subsidize legal fees, if you take a loan from them.
Letter of Offer (LO)
Letter of Offer is given by the lender on acceptance of the loan application. It is a contract and states the terms of the loan package given to the borrower. The borrower will then accept the loan by signing the LO, and both parties are bound by the contract from there on.
Loan amount
The amount the borrower promises to repay according to the mortgage contract. It may differ from the amount of the cash given by the lender, because the lender may include charges and fees to the loan amount.
Loan-to-value ratio (LTV)
LTV is calculated as the loan amount divided by the lesser of the selling price or the appraised value of the property. The maximum LTV that lenders can do in Singapore is 90%. LTV therefore defines the maximum mortgage loan the lender can give out against the property.
Loan term
Loan term refers to the number of years over the loan amount has to be repaid. You can get loan terms of up to 35 years in Singapore currently.
see how your payments can vary with different loan terms
Lock-in period (or loyalty period)
Lock-in period refers to how long you are tied to the loan. If you make a full or some times even partial prepayment of your loan during this period, you will be subject to prepayment penalties. Lock-in period is usually clearly stated when you take out a loan package and is typically 1, 2 or 3 years.
Monthly debt obligations
Monthly payments required at the time of loan application on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan applied for.
use our affordability calculator to see how much you can borrow
Mortgage
Mortgage is a loan in which the borrower puts up the title to property as a security (collateral) for the loan. If the borrower doesn't pay back the debt on time (defaults), the lender can foreclose on the property and have it sold to pay off the loan.
Mortgage insurance
A home loan or mortgage insurance plan is designed to help repay the home loan outstanding in the event of the loan-taker's untimely death, disability or terminal illness.
Prepayment
Prepayment refers to repayments of the loan made in excess of the scheduled payments. If the additional payment pays off the entire balance it is a ‘prepayment in full’; otherwise, it is a 'partial prepayment'. Prepayment may carry penalty fees (see below)
Prepayment penalty
Prepayment penalty is a fee charged by the lender if the borrower pays off the loan early. The penalty can be a percentage of the loan balance or repayment of the some of the benefits given by the bank at the signing of the loan.
Primary residence
Primary residence is the property in which the borrower will live most of the time. As opposed to a second home or an investment property that will be rented out. Lenders typically have different lending criteria depending on what type of property the person is getting the mortgage for.
Principal
Principal is the portion of the monthly payment (comprised of interest and principal) that is used to reduce the loan balance.
Property tax
Property tax is payable by the property owner. The amount of property tax you have to pay per year is a percentage of the Annual Value (AV) of the property. AV is the estimated yearly rent the property can fetch if it were rented out. The tax for residential property is 4% of the AV (e.g. $4000 monthly rental x 12 = $48,000 annual value x 4% = $1920 property tax).
Refinancing
Refinancing refers to taking a new mortgage to pay for the old mortgage. Refinancing is usually done after the lock-in period to lower the monthly payments by taking a lower interest rate package and/or releasing cash from a property by increasing the loan amount.
use our refinancing calculator to see how much can you save / cash on
Repricing
Repricing refers to switching your mortgage to another package with the same lender. Typically after your lock-in period, you would re-negotiate a new package with your lender. Or refinance with another lender (see above).
Required cash
Required cash refers to the total cash required to close the property transaction. It includes down payment, legal and agency fees, stamp duties, etc. However, it can be reduced by using CPF savings to pay partially for the property.
Singapore Interbank Offered Rate (SIBOR)
SIBOR is fixed by the Association of Banks in Singapore. It represents the rate that banks and financial institutions lend unsecured funds to each other in Singapore. Many local housing loan interest rates track movements in the SIBOR - the mostly commonly used SIBOR rates for mortgages are 3-month and 12-month SIBOR. For example, if your loan is based on 3-month SIBOR, your loan interest rate is reset every 3 months (SIBOR plus lender's margin).
Stamp duty
Stamp duty is a tax on commercial and legal documents which record and effect transactions relating to immovable property. In other words, it is a tax by government to record transactions and to keep record of ownerships of land and property.
Underwriting
Underwriting refers to the process of examining all the data about the property transaction to determine whether the mortgage should be issued. This is typically done by the lender.
