Many loan packages marketed in Singapore are dubbed the best home loans in the country. But not every housing loan is suitable for you.
The loan amount offered, interest rates, tenure, and other factors must all be within your financial and repayment capacity. So which bank housing loan is best?
In this article, we explain how to identify the best mortgage rates in Singapore and how to decide which bank housing loan is best. Our aim is to help you find the best home loan in Singapore.
How To Get A Bank Home Loan
The process of getting a home loan from a bank takes three steps. They are:
Determine The Maximum Loan Amount You Qualify For
Start by determining how much you would get from the bank from your mortgage loan application. Your maximum amount depends on your Total Debt Servicing Ratio (TDSR) or the Mortgage Servicing Ratio (MSR).
The TDSR, which should be less than or equal to 55%, is the amount of debt you pay relative to your income. Use a TDSR calculator to see how much you can borrow.
On the other hand, the MSR refers to the maximum percentage of your gross monthly income that you can direct towards servicing your property loans. The MSR limit is 30% of your monthly gross income. But the MSR is only applicable to the purchase of HDB flats and executive condominiums.
The second step is to obtain the In-Principle Approval (IPA) if you want to get your mortgage loan in Singapore from a bank, or a HDB Loan Eligibility (HLE) letter if you prefer a HDB loan.
The IPA and HLE are the letters that the respective institutions issue. They indicate the maximum loan amount you can access.
Make The Application
After getting the IPA, you have a 30-day window to pay for the Option To Purchase (OTP) that you will present to purchase the HDB or private property.
Within 21 days after getting the IPA or six months for the HLE letter, make the downpayment to have the loan approved and submitted before the OTP expires.
Types Of Home Loans
The types of home loans in Singapore depend on the type of property you want to acquire. They are:
The HDB loan is one that you apply for when purchasing a new HDB BTO, HDB resale flat, or HDB Sale of Balance (SBF) flat.
A HDB loan cannot be used to purchase a private property, but you can use a bank loan to buy either a HDB flat or a private property. This loan type is suited to those who are risk averse because it has a fixed interest rate.
Private Property Loan
Private properties in Singapore could be anything from a landed house, a condominium, or an executive condominium. Such properties can only be financed with mortgages from banks or other financial institutions such as licensed money lenders.
A private property loan is designed for those who want to reprice and refinance their mortgage loans every few years and have a good credit score.
You can choose from a variety of home loan packages with a floating or fixed SIBOR interest rate, which is often lower than the HDB interest rate.
Home Loans For HDB And Private Properties
The home loans for HDB and private properties are varied and designed for different uses, with unique conditions attached.
For example, you are eligible to get a HDB loan for the purchase of a HDB flat if you or your spouse is Singaporean. Also, your combined income must be lower than the set maximum income. You must not own any private or commercial properties.
The HDB loan has a fixed interest rate of 2.6% that changes only when the CPF Ordinary Account interest rate changes. But, because the CPF OA rate is not likely to change, the HDB home loan rate stays the same.
Private property loans are divided into two categories:
a. Loans for purchase of property under construction (BUC)
It’s possible to start paying for and own a home that is still under construction. To get the loan for it, choose a bank loan that does not have a lock-in period so that it’s possible for you to refinance when the interest rate falls.
b. Loans for the purchase completed or resold property
Singapore mortgage lenders offer competitive loans for these properties at a fixed or floating interest rate.
HDB Loan Vs Bank Loan
|HDB Loan||Bank Loan|
|Interest Rates||Fixed rates. The current interest rate is 2.6% per annum, or 0.1% above the current OA interest rate||Fluctuates going by the market rates.|
Interest rates are lower, so you can continue saving for your retirement. You may even refinance if the interest rate falls further
|Downpayment||20% of the purchase price|
(paid fully in cash, CPF OA savings, or both)
|25% of the purchase price|
(5% in cash and 20% in cash or CPF savings)
|Lock-In Period||No lock-in period||Two to three years’ lock-in period|
|Maximum Loan||80% of the purchase price for new flats as of 30 Sep 2022|
80% of the market valuation or resale price, whichever is lesser
|75% of the purchase price|
|Early Payment||No penalty||1.5% penalty of the loan financed|
|Late Payment||Currently stands at 7.5% per annum||Each bank sets its rates but is not as lenient as HDB|
|Eligibility||Depends on income limit, citizenship, restrictions on previous property ownership, and others||Good credit score|
Use the details in the table above to conduct a home loan comparison in Singapore to which of the two you prefer.
Fixed Home Loan Rates Vs Floating Home Loan Rates
A home loan with a fixed interest rate maintains the same interest rate for as long as you hold the loan. It gives you consistency and stability, making it easier to plan your finances.
It’s ideal for those with a low risk appetite, although the fixed rate is often higher than a fluctuating rate.
If the loan has a lock-in period, its interest rate will be pegged to market rates after the lock-in period ends. When they fall below the current rate, you can refinance and take advantage of lower rates.
Fluctuating or floating interest rates are pegged by the Singapore Overnight Rate Average (SORA), Singapore Interbank Offer Rate (SIBOR), the Fixed Deposit Home Rate (FHR), or Board Rate.
This loan type is suited to those who can bear risk because it can either mean they pay more than expected or make huge savings.
But even so, this loan type is not as risky because the bank issues a 30-day notice when expecting changes. If the interest rate has dropped considerably, the bank may give you a refinance option.
Here’s a table to summarise the comparison between the fixed home loan rates and the floating home loan rates:
|Fixed Home Loan Rates||Floating Home Loan Rate|
|Interest Rates||High||Lower interest rate, but may increase at the end of the promotional period|
|Volatility||Not volatile, fixed rates||Prone to volatile changes as the market fluctuates|
|Pegged To Market||After the lock-in period||Pegged to SIBOR or SORA rates|
How To Choose The Best Home Mortgage Loan
Finding the best home loan in Singapore will depend on the following:
Home Loan Type
It would help if you first decided whether you want a fixed or floating rate loan, depending on your mentality towards risk.
If you plan on buying a HDB flat, take a HDB loan rather than a bank loan. Although the HDB loan has a high interest rate, it is a fixed rate, and the downpayment needed is 20% as opposed to the banks’ 25%.
This is paramount when it comes to taking loans. With a high interest rate, you would have to pay a much higher price cumulatively.
So opt for a low interest rate to save on some costs. Also, note that banks often offer promotional rates for the first few years you hold the loan and, after that, raise the rates.
Banks have a period called a lock-in period, typically falling between zero to five years. During this period, the bank charges a penalty (2-5%) on your outstanding debt for a cancelled or prepaid home loan.
These terms are meant to help the bank cover its base for the promotional rates it offered in the first few years of holding the debt.
If you’re buying a home under construction, opt for a bank loan without a lock-in period> This is so that when the construction is completed, and you have more money in your hands, you can choose to refinance your loan.
Which Bank Has The Best Floating Home Loan?
At the time of publishing, UOB 3M SORA stands out with an interest rate of 1.6% + 0.70% per annum. But the bank with the best refinancing terms and no lock-in period is DBS FHR6, although its interest rate is relatively high.
See the following bank interest rates* to compare home loans in Singapore:
|Bank||1st Year Interest Rates|
|DBS FHR6||1.40% + 1.30%|
|DBS 3M SORA||1.60% + 1.00%|
|DBS FHR6 (no lock-in)||1.40% + 1.75%|
|UOB 3M SORA||1.60% + 0.70%|
|Citibank 1M SORA||2.21% + 0.78%|
|Citibank 3M SORA||1.60% + 0.78%|
|Maybank 1M SORA||2.21% + 0.80%|
|Maybank 3M SORA||1.60% + 0.80%|
|OCBC 1M SORA||2.21% + 0.98%|
|OCBC 3M SORA||1.60% + 0.98%|
|Standard Chartered HDB Bridging Loan||2.68% + 2.00%|
*Information correct at time of publishing
Note: 1M SORA is a loan with a refresh period of one month, while a 3M SORA has a three-month refresh period.
Get The Right Housing Loan For Your Needs
So which bank housing loan is best? While some banks in Singapore may offer good housing loans, you may get a better deal with a licensed money lender.
Licensed money lender U Credit, in particular, provides some of the lowest interest rates in the industry, lenient lending terms, and flexibility to provide any amount you want.