Guide to Mortgage and Housing Loans in Singapore

PropertyGuru Editorial Team
Guide to Mortgage and Housing Loans in Singapore
Can you guess which is the world’s most expensive city to live in? Paris? London? Or Tokyo? According to the 2020 report by the Economist Intelligence Unit (EIU), that dubious honour belongs to none other than Singapore (tied with Hong Kong and Osaka).
For most residents in Singapore, their home purchase will be their single, most expensive expense in their lifetime. Although it is true that the curve has significantly flattened since the 90s and early 00s, property prices in Singapore generally consistently move upwards.
Today, even a modest, 3-room HDB flat will set home buyers back by about $200,000. The bigger 4-room and 5-room flats can cost from $400,000 to even $600,000+ in mature estates.
If you’re eyeing private properties, be prepared to double that. Condominium prices usually start close to $1 million, while landed houses cost a few million at least.
So if you’re planning to buy a house in the world’s most expensive city, you’d probably have to take up housing loan (also known as mortgage loan or home loan) to finance it.
In this article, we explain what a housing loan is, the different types of home loan packages, and everything else you need to know about financing your property purchase.

First Things First, Can You Afford That Dream Home?

To a first-time homebuyer, it may be complicated to work out what you can afford to buy.
For convenience, check out the PropertyGuru Mortgage Affordability Calculator, which helps you to estimate how much you can afford when selecting a property. Spend a few minutes doing your sums here before shopping for your dream home – it will save you many hours of effort further down the road.

Affordability Calculator

Estimate what you can comfortably spend on your new home

Even with a loan, the amount of money you can borrow depends on many factors – your salary, the Loan-to-Value (LTV) ratio, the Mortgage Servicing Ratio (MSR), and more. Let’s go through them one by one.

I: What is the Mortgage Servicing Ratio (MSR)?

The Mortgage Servicing Ratio (MSR) is the proportion of your monthly gross income that is spent on your mortgage repayment. The MSR only applied to HDB and executive condominium (EC) purchases.
The MSR is currently capped at 30%, which means that if you earn $4,000 a month, only $1,200 of your salary can be used to service your mortgage.
Although it seems strict, this is actually a sensible enough approach to take that helps ensure home buyers only commit to what they can afford.

II: What about Total Debt Servicing Ratio (TDSR)?

A lot of home buyers ask if the MSR is the same as the Total Debt Servicing Ratio (TDSR). The answer is no – the TDSR states that only 60% of a borrower’s gross monthly income may be spent on debt repayments.
These debt repayments include all loans you take, including (but not limited to) your mortgage. So this means if you have other outstanding loans (like car loans, credit card bills, or personal loans), it will all count in the 60%.
As mentioned, the MSR only applies to HDB flat and EC purchases. If you’re buying private properties, you only need to consider TDSR.

III: Loan-to-Value Ratio (LTV)

The loan-to-value (LTV) ratio defines the maximum amount property buyers can borrow, whether the loan is from HDB or a bank. LTV ratios are implemented as a safeguard against over-leveraging by borrowers.
For HDB Concessionary Loans, which are only available for BTO, SBF, ROF and resale flat purchases, the maximum Loan-to-Value ratio is 90%. That means that you can borrow up to 90% of your property value or purchase price, whichever is lower.
For a bank loan, the maximum LTV ratio is capped at of 75% LTV for the first loan (i.e. no outstanding home loans). Of the remaining 25%, 5% must be paid in cash. The remaining 20% can be paid using a combination of cash or your CPF-OA savings.

Types of Housing Loans in Singapore

After you’ve decided on the property you’d like to purchase, the next step is to decide how to finance it.
If you’re buying a HDB flat, you can choose to take a HDB Concessionary Housing Loan or a bank loan.
If you’re buying an EC or private property, you can only choose a bank loan.

I: HDB Housing Loan

HDB provides a housing loan to eligible flat buyers at a concessionary interest rate, pegged at 0.1 per cent above the prevailing CPF interest rate. The current HDB interest rate is 2.60% p.a.
Currently, the HDB loan interest rates are higher than what most banks offer, especially for their floating rate packages (more on that below). However, because the maximum LTV ratio is 90% (as opposed to 75% for private bank loans), the downpayment is often more affordable.

HDB Housing Loan Eligibility

To qualify for a HDB loan, at least one buyer has to be a Singapore citizen, and your average gross monthly household income must not exceed S$14,000. A full list of eligibility criteria can be found at HDB’s website.
Before applying for a HDB loan, you’ll need to obtain a HDB Loan Eligibility (HLE) letter. As a financial planning tool, the HLE letter includes important information such as the maximum loan amount you can borrow, the maximum amount of installment you can pay every month, and the maximum repayment period of your loan.
You can apply for a HLE letter online at HDB’s website. To experience a seamless application, it’s a good idea to prepare a softcopy of your income documents. More specifically, you’ll need the last three months of your pay slip, and the latest 15 months of your CPF contribution history.
Once your loan eligibility is approved, the HLE letter will be valid for six months from the date of issue – more than enough time for you to finalise a loan arrangement with HDB.

II: Bank Loans

Alternatively, you may wish to consider taking a housing loan from a bank or financial institution (private home buyers, you have no choice!).
The main advantage of taking a bank loan is the current low-interest environment, which means you could potentially pay significantly less than if you took up a HDB concessionary loan.
Again, to enjoy this, you must be able to cough up the 25% downpayment (of which at least 5% must be in cash). For a $1 million home, that’s $250,000 in total, $50,000 of which must be in cash.
There are two main types of bank mortgage packages: fixed rate and floating rate loans. The agreed rates are typically good for 2 to 3 years before they revert to another rate determined by the bank.

Fixed Rate Bank Loans

As its name suggests, fixed rate home loans apply the same agreed rate throughout the contractual period. For example, if you signed up for a fixed rate package at 2.1% p.a., it will remain so for the 3 years you signed for.

Floating Rate Bank Loans

Floating rate home loans are slightly different. These are pegged to some sort of index, and will move upwards and/or downwards along with it. Generally, these are considered more volatile while the fixed rate packages are considered more stable.
The most popular type of floating rate loan is the Singapore Interbank Offered Rate (SIBOR) packages. Because it is pegged to a published index, it is relatively more transparent than other rates which are simply determined by the banks.
If you simply want to compare current mortgage packages available, try PropertyGuru’s mortgage comparison tool to review home loans across major banks with the latest interest rates.

How to Apply for a Bank Housing Loan

The first step to securing a housing loan from a bank is to get an In-Principal Approval (IPA). As a conditional approval for your housing loan, IPA indicates how much you can borrow from the bank and the various loan packages available, so you have a clearer understanding of which properties are suitable for your budget.
Once you’ve decided to sign a loan package with the bank, you’ll be given a Letter of Offer that states all the important information such as the loan amount, interest rate and lock-in period of the loan. With this Letter of Offer, you’ll be able to exercise your Option to Purchase, and proceed to buy the property.
Some common documents you’ll need include:
  • Copy of your NRIC
  • Most recent pay slips (3 months)
  • Most recent Notice of Assessment (2 years)
  • Latest CPF Ordinary Account Statement
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