Singapore Home Loans 101: Breaking Down The Basics

PropertyGuru Editorial Team
Singapore Home Loans 101: Breaking Down The Basics
Unlike deciding whether to order nasi lemak or chicken rice for lunch, choosing the right home loan to finance your home purchase isn’t as straightforward. Before even comparing mortgage packages, you’ve got to decode the mortgage jargon out there: lock-in periods, subsidies, fixed interest rates, floating interest rates, and more.
Whether you’re planning to buy an HDB flat or private property, you’ll need to learn about home loan basics. And we’re here to answer your home loan questions! Here’s an overview of the article, click to jump ahead:

How Do I Get a Home Loan in Singapore?

Broadly, here are the steps to obtaining a home loan. First, compare home loan packages. After you’ve shortlisted your top home loan options, gather your documents to submit a preliminary application. Some common documents you’ll need include:
  • Copy of your NRIC
  • Most recent payslips (3 months)
  • Most recent Notice of Assessment (2 years)
  • Latest CPF Ordinary Account (OA) Statement
After that, allow time for bank assessment before receiving your In-Principle Approval (IPA). Once you’ve secured an IPA, check the final terms and conditions before making a final decision on a home lender.
If you’re taking on an HDB loan, the process is similar, save for the fact you’ll go through HDB and you’ll need an HDB loan eligibility letter (HLE).
Once all relevant documents are submitted and the loan is approved, congrats, you’ve got a home loan!

How Should I Compare Home Loans in Singapore?

There is no single ‘best’ home loan – you should choose a home loan best suited to your financial needs and goals. However, here is a list of factors you should consider when comparing home loans:
  • Home loan interest rate
  • Type of interest rate (fixed interest rate or floating interest rate)
  • If you opt for a floating interest rate package, understand what reference rates the loan is pegged against (i.e. SORA, SIBOR, fixed deposit rates or board rates)
  • Valuation fees
  • Lock-in period
  • Any waiver of redemption payable if you sell your property during the lock-in period
  • Free conversion within/at the end of the lock-in period
You can use PropertyGuru’s mortgage comparison tool to review home loans across major banks with the latest interest rates, and assess the best mortgage plan for your prospective property.

Should I Choose a Bank Loan or an HDB Loan?

If you’re an HDB flat owner, you can choose to finance your home purchase with either a bank loan or an HDB loan.
Most HDB home buyers, especially young couples who are just starting out their careers, choose to take on the HDB loan as it requires less upfront cash. You can pay the entire HDB loan downpayment using your CPF OA savings.
Additionally, the HDB housing loan has an interest rate pegged at 0.1% above the COF OA interest rate. Another plus is that it’s relatively stable; the CPF OA interest rate has remained at 2.6% since 1999.
On the other hand, bank loan interest rates are more volatile and move with the market. Their offered home loan interest rate packages can be greater or less than the 2.6% offered by HDB. However, if you have an appetite for risk, you could take advantage of these interest rate fluctuations and secure a home loan with an interest rate more competitive than HDB’s.

What Is the Difference Between Fixed vs Floating Interest Rate?

What is a Fixed Interest Rate?

Taking on a home loan with a fixed interest rate means that your instalments will remain the same every month until the next cycle of your loan tenure. These packages usually have a lock-in period of two to five years. The benefit of a fixed rate package is you’ll know exactly how much you’ll have to pay for your monthly instalments.
Once the fixed interest rate time frame is completed, it changes to a floating interest rate. At this point, you can either refinance your loan to another fixed rate package, or go for a home loan with a floating interest rate.

What is a Floating Interest Rate?

Floating interest rates fluctuate during the loan tenure; they can go up or down at any time. The frequency is based on the underlying pegged benchmark. There are a few different types of floating rates in Singapore: board rates, SORA-pegged floating rates, SOR-pegged floating rates, SIBOR-pegged floating rates, and fixed deposit rates. SOR and SIBOR are being phased out.
Typically, home buyers opt for floating interest rates if they have the perception that interest rates will decrease or remain low for a certain period of time. With floating rate packages, monthly payments can decrease only if interest rates decrease.
Want to learn more? Read our guides on SORA vs SIBOR vs SOR interest rates and fixed vs floating rate home loans.

What Is a Lock-in Period?

It’s a period of time where you’ll be ‘locked-in’ or tied to a home loan package in the same bank. Sometimes, you’ll usually get a special interest rate during your lock-in period.
Depending on your mortgage package, lock-in periods last between two to five years. On the downside, you won’t be allowed to switch banks during the lock-in period without incurring a penalty.

What Is a Loan Tenure?

The loan tenure (also known as the loan term) is the duration of time you take to repay the entire loan. Loan tenure usually lasts between 10 to 35 years. Longer loan terms translate to smaller monthly repayments, but a higher amount of interest paid over time.
Younger home buyers usually choose the maximum 25- to 35-year home loan tenure. The maximum loan tenure is usually capped at the age of 65. In other words, if you’re buying a home at the age of 55, banks will give you a loan tenure of up to 10 years.

What Do Banks Look for When Approving a Home Loan?

The bank will take into consideration:
  • Your income
  • Age
  • Number of dependents
  • Education level
  • Employment status (and whether you’re employed by a company, self-employed, and the length of employment)
  • Your credit history and monthly financial commitments
  • Property type you want to buy (HDB versus private property)
  • Location of the property
  • Current market value of the property

How Do I Get a Home Loan If I Have Bad Credit History?

If you’ve got a history of making late payments or have a poor credit score, you may not be approved for a loan. There’s no quick fix. You’ll need to either wait a few years and apply again when you have a better credit score or try applying for a smaller home loan quantum.

What’s the Difference Between Refinancing and Repricing?

For those who have a home loan and their lock-in period is almost up, you may be wondering about refinancing vs repricing. Refinancing your home loan is when you move your home loan to a different bank to get better interest rates.
Repricing your home loan is when you change your home loan package within the same bank, for a better home loan rate package. Want to know when the best time to refinance is? Try our SmartRefi tool and be alerted to the best deals.

Can I Get a Home Loan for a Property That Is Currently under Construction?

Yes, you can get a Building under Construction (BUC) loan, if you’re waiting for your private property to be constructed.

How Much Home Loan Can I Qualify For?

This depends on how many outstanding loans you have, the length of the loan tenure, and if the loan period extends past the borrower’s age of 65. For bank loans, assuming the loan tenure does not exceed 30 years for private property (or 25 years for HDB flats) and the loan period does not extend past the borrower’s age of 65:
  • If you have not taken on any home loans yet, you can lend up to 75% of your property’s value
  • If you have an existing home loan, you can lend up to 45% of your property’s value
  • If you have two or more outstanding home loans, you can lend up to 35% of your property’s value.
The Loan-to-Value (LTV) limit of HDB loans is up to 80% of your property’s value. Keep in mind, the amount of loan you can get is also subject to the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).

What is TDSR?

The TDSR places a limit on the amount you can borrow by ensuring your monthly debt repayments account for less than 55% of your monthly income. Use our TDSR calculator to find out how much of your gross income you can put towards your home loan.

Can Foreigners Buy Property in Singapore?

Foreigners can’t purchase HDB flats or landed property (subject to approval from Singapore Land Authority). However, foreigners are eligible to purchase condos. Just note you’ll have to pay a 30% Additional Buyer’s Stamp Duty (ABSD) tax as well as up to 4% Buyer’s Stamp Duty (BSD).

What Is a Valuation Fee?

A valuation fee is paid when the bank evaluates the market value of your home. Based on the value of your property, this fee can be anywhere between $150 to $700.

What Is a Late Payment Fee?

It’s the fee from the bank if you fail to pay your home loan on time. A late payment fee isn’t exactly pocket change, it can actually be a significant amount that varies based on the bank, so be sure to make your home loan payments on time!

What Is a Partial Repayment Penalty?

If you make capital pre-payments in addition to the agreed monthly repayments during the lock-in period, it’s likely that your bank may charge you a partial prepayment penalty.

What Is a Cancellation Fee?

If you decide to cancel the home loan before your bank disburses the home loan and after you have signed the bank’s letter of offer, you’ll need to pay a cancellation fee.

Need Help With Your Home Loan?

Unfamiliar with how to choose the ‘right’ home loan? Not sure what paperwork you need? Want to refinance your existing mortgage package? Get in touch with our mortgage experts. They’ll guide you towards making smarter financing decisions and smoothen the overall process, all at no cost.
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Disclaimer: The information is provided for general information only. PropertyGuru Pte Ltd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

More FAQs About Getting a Home Loan in Singapore

For the HDB Concessionary Loan, it is 2.6%. As of 18 October 2022, some bank interest rates have hit 4%

Can I Use My CPF Find out why you weren't given financing, then adjust your application according to these reasons. Evaluate other available home loan options and try again.

Yes, your CPF OA savings can be used to purchase property, pay legal fees and stamp duty fees.