How Home Loans Work In Singapore

house loan in Singapore

Owning property and buying a house for themselves is almost everyone’s dream – most people work hard throughout their life and accumulate their life savings to be able to own a house for themselves one day. However, despite working hard and collecting all they have, it is still sometimes difficult to own a property.

Buying a house is not as easy as most of us thought when we were young – as we grow up and reality hits, we understand there is much more to buying a house than just working hard and saving up. It is only after understanding how finances work, we realize that owning a house requires paperwork, meeting legal terms and, well, of course, a lot of money.

This is one reason why most people worldwide live in rented properties. However, the mindset in Singapore is a little different. Despite being one of the costliest places on earth, with such tremendous and extensive government measures such as financial grants, market regulations and accessible housing loans – the majority of citizens are able to afford a house.

In fact, according to statistics, 88.9% of the people in the country are homeowners or property owners as of 2021. So what’s the reason so many people are able to afford their own homes in the country?

Well, the answer is housing loans. Housing loans are pretty accessible to most residents of Singapore. Unlike any other country in the world – measures by the Singapore government have made housing loans a common sight which has, in turn, made it easy for the people to afford one.

So if you want to own a home in Singapore and don’t know how housing loans work here, you are at the right place. Let us look into how housing loans work in Singapore.

What are Housing Loans in Singapore?

Quite evident from its name, a housing loan in Singapore is the practice of borrowing a certain amount of money from either a bank or the Housing and Development Board (HDB) to help you afford a property. Sometimes, banks may refer to “housing loans” as “home loans” in their marketing. The loan products are the same.

With a housing loan in Singapore, you get the money to buy your house, but your property becomes the collateral for the loan. You are only granted a certain loan amount, depending on your eligibility and where you fall in the criteria.

The loan is disbursed to the seller upon the payment instruction of the applicant after a certain amount of downpayment regulated by legislation is made by you – then you pay the remaining amount for the purchase to the seller. Interest is charged from the very first loan disbursement.

Where to Apply for Housing Loan – HDB vs Financial Institution

Singaporeans have two housing loan options to borrow from – the HDB or financial institutions that the Monetary Authority of Singapore regulates. To decide the type of housing loan most suitable for you, you have to research into the nitty gritty details of both options.

However, don’t worry because we have made this a little easier for you. Here is a comparison between the two to help you decide.

●       Repayment Period

The repayment period for a HDB loan caps at 25 years or up until the applicant is 65 years old depending on whichever is shorter. However, the repayment period for financial institutions is up to 30 years.

●       Interest Rate

HDB offers 0.1% above the prevailing CPF Ordinary Account interest rate, while financial institutions usually offer varying interest packages– depending on the prevailing market rate and the eligibility of the applicant.

●       Loan to Value

The HDB Concessionary Loan have a maximum Loan-to-Value (LTV) ratio of 85% of the property purchase price.  The maximum LTV ratio offered by financial institutions is capped at of 75% LTV for the first loan.

●       MSR and TDSR

The Mortgage Servicing Ratio (MSR) for HDB housing loans is capped at 30% of your gross monthly income, while Total Debt Servicing Ratio (TDSR) is usually not applicable. Comparatively, the MSR for housing loans by financial institutions is capped at 30%, and the TDSR is capped at 55% of one’s gross monthly income.

Considering the above comparison between the two, you can decide whichever option suits you better. Most people consider these differences before taking a house loan in Singapore.

Interest Rates

The HDB concessionary interest rate is pegged at 0.1% above the prevailing CPF Ordinary Account interest rate. It is reviewed quarterly, in line with the CPF interest rate revisions.

On the other hand, the interest rates and accompanying terms offered by financial institutions are more susceptible to fluctuations. There are two main types of interest rate for loans offered in the market:    

1.     Fixed Rate Loans

Fixed rate loan, as the term suggests, offers a fixed interest rate that does not change for the contracted period – even if the market falls. Only after a certain fixed rate period is over does the interest becomes variable.

2.     Floating Rate Loan

Floating rate or variable rate housing loans offers varying rate which is tied to a reference rate, for example, Singapore interbank offered rate (SIBOR) or LIBOR. The rate goes up if the reference rate goes up – and vice versa.

How To Find Out If I am Eligible for HDB Loan?

Your HDB loan eligibility decides the maximum amount of loan you can borrow. You can find out your HDB loan eligibility by applying for an HLE (HDB loan eligibility) letter.

This will help you plan for your property purchase by providing you with information on how much you can borrow and what monthly repayments you will have to make accordingly.

Get a Home Loan – Become a House Owner!

Getting a housing loan in Singapore might not be as simple as you think – it requires a lot of paperwork and financial planning. Suppose you dream of owning your own property one day; it’s time to start looking for your loan options today. There is an array of options for you to approach – the banks, HDB or alternative financial services institutions. If you are still unsure, head over to ValueMax and get an understanding of your house-purchase planning and loan management – they also offer housing loans with manageable interest rates and easy repayment plans.

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