Basics of Obtaining a Home Loan in Singapore
This article answers some of the frequently asked questions about obtaining a home loan in Singapore
Unfortunately, obtaining a home loan is not as simple as ordering your chicken rice or kopi-c. There’s so much industry jargon that must be understood, floating interest rates, fixed interest rates, lock-in periods, and more.
Whether you’re looking at HDB flats or private properties, this article will answer all your questions about obtaining a home loan. So, keep reading if you are interested in learning the basics of getting a home loan in Singapore.
Frequently Asked Questions
What do I need to do to get a home loan in Singapore?
The first step would be to do a comparison of home loan offers. Make a list of your top options and then pull together all the documents you will need to submit with your preliminary application.
You will most likely need the following documents:
- Copy of your passport or NRIC
- Your last 3 months’ payslips
- Your most recent (2 years) Notice of Assessment
- Your most recent CPF Ordinary Account Statement
Once you submit all that, you will need to wait while the bank evaluates your application. In time, you will receive an In-Principle Approval (IPA). Once you have that you should review the final terms and conditions of the loan. You will compare offers before deciding which lender to go with.
How do I make a comparison between home loans in Singapore?
There is no such thing as “the best” home loan, however there are certain criteria that you should consider when you compare them:
- Interest rate being offered
- Whether the interest rate is fixed or floating (variable)
- If you choose a floating rate, know that your rate will be pegged against 1-month / 3-month SIBOR, board rates or fixed deposit rates
- Cost of valuation
- Any waiver of the redemption owed if you sell your home before the lock-in period is over
- No-cost conversion during or when the lock-in period is over
Which makes the most sense, an HDB loan or a bank loan?
Most people buying an HDB flat decide on an HDB mortgage because these loans are more lenient. For you to qualify you would only need a 10% down payment. They are 0.1% higher than the CPR Ordinary Account rate of 2.5%. The interest rates on bank loans change. Even so, bank loan interest rates are typically lower when compared to HDB’s concessionary 2.6% rate. Also, bank loans are competitive, so you will have many options to choose from, whether they have fixed or floating interest rates.
You can learn more about HDB and bank loans here.
Can you explain what the difference is between a fixed interest rate and a floating interest rate?
A fixed interest rate on a loan means that you will be paying the same amount every month on your repayment instalments until you reach the next cycle of the tenure on your loan. The typical range is from two to five years, depending on the loan you end up choosing.
People who opt for a fixed rate do this because it’s easier for them to budget the same amount of money for their monthly instalments, as the rate doesn’t change. Once the time frame for the fixed interest rate is over, it becomes a floating rate. This is when many homeowners decide to refinance back to a fixed rate loan if this is still what they prefer.
A floating interest rate on a loan will fluctuate throughout the loan tenure. These rates are pegged to another reference rate, which are typically indexes like SIBOR or the fixed deposit home rates (FHR) that have a spread. An example of the last one would be the DBS FHR Loans in which the rates are based on the 12- and 24-month fixed deposit rate average for deposits that range from $5,000 to $9,999.
Homebuyers are likely to choose a floating interest rate if they think that interest rates will drop or stay low for the foreseeable future. With a floating rate, your monthly repayments will drop only if there is a decrease in interest rates. Singapore has three types of floating rates: SIBOR-pegged, board rates, and fixed deposit rates.
The rule of thumb is to choose a fixed rate loan when interest rates are going up and choose a floating rate loan when interest rates seem to be stable or on the decline.
What is meant by a “lock-in” period?
This is a stated period of time in which you will be tied to or “locked-in” to a home loan package at a particular bank. During this time borrowers typically get a lower interest rate. Lock-in periods can last from one to five years, and during this time your monthly instalment repayments won’t change. However, since you’re locked in, there will be penalty if you refinance your mortgage loan with another bank or discharge your loan in the case of selling your property.
What does the “loan term” mean?
The loan term is how long you have to fully repay the loan. Loan terms are typically for 10 to 35 years. The longer the loan term, the smaller the monthly repayments, but they cost more in interest over time. Younger buyers often choose the maximum term on a home loan, which is 25 to 30 years. The maximum term is typically capped at the borrower’s age of 65. So, if you are 55 years old and applying for a home loan, the bank will offer you a loan term of no more than 10 years.
What is the home loan rate in Singapore now?
The home loan rates that banks are currently offering in Singapore range from 1.4% to 1.8% p.a. And the rate is 2.6% for the HDB Concessionary Loan.
What are banks looking for when deciding to approve a home loan?
The bank will consider the following:
- Your total income
- Your educational level
- How many dependents you have
- Your age
- Your job and whether you work for a company or are self-employed and how long you’ve been at your current job
- Your credit history
- Your monthly financial obligations
- The type of property you’re seeking to finance (HDB or private property)
- Location of property
- The property’s current market value
Is there any difference between refinancing a loan and repricing it?
Yes, there is a difference. When you refinance a home loan you are moving it to another bank for a lower interest rate. When you reprice a home loan you change the loan package at the same bank to get a better interest rate.
You can learn more about refinancing vs. repricing here.
What are my options should my home loan not be approved?
If your application for a home loan was denied, you need to find out why. Once you know why they rejected you, you can try changing your application, consider other home loan options, reach out to other banks, or contact the mortgage partners of Pinnacle Estate Agency for help.
I have a poor credit history – is there some way I can qualify for a home loan?
If you have a history of paying your bills late your application for a home loan may be declined. There is no way to quickly fix this. We recommend that you do everything you can in the next few years to improve your credit. This means paying off as much debt as you can and paying all your bills on time. Once you do this you should have better luck qualifying for a home loan. Otherwise, you could try applying for a smaller loan amount.
Is it possible to get a home loan if the property is still under construction?
Yes. There are a number of competitive rates being offered for apartments still under construction.
How much can I qualify to borrow for a home loan?
If you are a first-time homebuyer, banks are allowed to lend you as much as 75% of the purchase price or valuation price, whichever is the lower. If this is a second home loan for you, banks are allowed to lend you up to 45% of the home’s purchase price. Other considerations are your personal income, loan tenure, and other existing loans you may have.
What is meant by the Total Debt Servicing Ratio (TDSR)?
The TDSR limits the amount of money you can borrow by making sure that your monthly debt repayments are less than 60% of your gross income per month. If you want to learn more about TDSR, you can read our article about it here.
Will I be allowed to use my CPF savings if I want to buy a home?
Yes. You are welcome to use up all the savings built up in your CPF Ordinary Account if you want to buy a home. You can also use this to pay the legal fees as well as the stamp duty, but not the agent commission fee.
Are foreigners allowed to buy property in Singapore?
Foreigners are not allowed to buy HDB flats or landed property, both of which must be approved by the Land Dealings Approval Unit in the Singapore Land Authority (SLA). But foreigners are eligible to buy condos. Just note that foreigners have to pay 20% Additional Buyer’s Stamp Duty (ABSD) in addition to the Buyer’s Stamp Duty (BSD) for purchase of residential property in Singapore.
What is the valuation fee for?
The valuation fee covers valuer’s assessment of your home to determine its open market value. Based on your property’s size and type, this fee can range from S$150 to S$700.
What are late payment fees?
A late payment fee is charged to the borrower each time they are late making their monthly mortgage payment. This fee is no small amount of money, in fact it can be quite significant depending on the bank. It’s important to pay all your bills on time, especially your home loan payments if you want to avoid late payments and maintain good credit.
When is a partial repayment penalty charged?
If you are making pre-payments on the principle during your lock-in period in addition to your regular monthly repayments, your bank will probably hit you with a partial prepayment penalty.
When is a cancellation fee charged?
If you end up cancelling the home loan after your application has been processed and you’ve signed the bank’s offer, but before funds are disbursed, you will be charged a cancellation fee.
Are you ready to refinance your home loan?
Our mortgage partners are here to help you:
- Save time by finding out how the property market is currently trending and other important insights
- Save money by giving you personalised advice on refinancing your home loan so that it meets your goals
- Make a wise loan decision by comparing and contrasting various banks’ home loan packages
At Pinnacle Estate Agency, we strongly believe in sharing our real estate knowledge to the public. For more content like this article, check out our Singapore Property Guides.
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