Navigating Mortgage Loans in Singapore

Types of Housing Loans in Singapore

In Singapore, you'll primarily encounter two main sources for housing loans:

• Bank Loans: Offered by commercial banks and financial institutions regulated by the Monetary Authority of Singapore (MAS). These are available for both private properties and HDB flats (if eligible).
• HDB Housing Loan: Offered by the Housing & Development Board (HDB) specifically for the purchase of new or resale HDB flats, subject to eligibility criteria (e.g., income ceiling, citizenship).

Bank Loans: Key Features

Bank loans offer a variety of interest rate packages:

• Fixed Rate Packages: The interest rate is fixed for an initial period (e.g., 1 to 5 years), providing certainty in monthly payments. After the lock-in period, the rate typically converts to a floating rate.
• Floating (Variable) Rate Packages: The interest rate fluctuates based on a benchmark. Common benchmarks include:
  • SORA (Singapore Overnight Rate Average): A volume-weighted average rate of unsecured overnight interbank SGD transactions. Many new loans are now SORA-pegged. You can learn more about SORA on the MAS website.
  • Board Rates / Fixed Deposit Pegged Rates: Some banks offer rates linked to their internal board rates or fixed deposit rates. These are less transparent than SORA-pegged rates.
• Hybrid/Combination Packages: Some packages might offer a combination, like a fixed rate for a period then switching to a SORA-pegged rate.

HDB Housing Loan: Key Features

• Concessionary Interest Rate: The HDB loan interest rate is pegged at 0.1% above the prevailing CPF Ordinary Account (OA) interest rate (currently 2.5% p.a., so HDB loan rate is 2.6% p.a., subject to quarterly review).
• Higher Loan-to-Value (LTV) Potential: HDB may offer a higher LTV (up to 80% for new flats, 80% for resale if using HDB loan) compared to banks for eligible buyers.
• Lower Downpayment: Consequently, the downpayment can be lower and potentially fully paid using CPF OA savings.
• Eligibility Criteria: Strict criteria regarding income, citizenship, and property ownership apply.

Key Financial Ratios & Limits

1. Loan-to-Value (LTV) Ratio

The LTV ratio determines the maximum loan amount you can borrow relative to the property's valuation or purchase price (whichever is lower). For example, a 75% LTV means you can borrow up to 75%, and the remaining 25% is your downpayment.

LTV limits are set by MAS and depend on:

• Whether it's your first, second, or subsequent housing loan.
• Loan tenure (shorter tenures might allow higher LTVs for some loan types).
• Borrower's age.
• Type of property.

For a first housing loan from a bank, the LTV is typically up to 75%. For HDB loans, it can be up to 80% for new flats.

2. Total Debt Servicing Ratio (TDSR)

The TDSR framework ensures borrowers are not over-leveraged. Your total monthly debt repayments (including the proposed home loan, car loans, student loans, credit card outstanding balances, and other secured/unsecured loans) cannot exceed 55% of your gross monthly income.

Banks will assess your TDSR meticulously before approving a loan. Our Full Property Buying Calculator can help you estimate your total upfront costs, which is the first step before considering mortgage payments.

3. Mortgage Servicing Ratio (MSR) - For HDB Flats & ECs

If you are buying an HDB flat or an Executive Condominium (EC) unit directly from a developer, the MSR applies. Your monthly mortgage instalment for the HDB/EC loan cannot exceed 30% of your gross monthly income. This is in addition to the TDSR.

The Mortgage Application Process (Simplified)

1. Financial Assessment & Budgeting: Determine your affordability. Use tools like our Dedicated Mortgage Calculator to estimate payments.
2. In-Principle Approval (IPA) / Approval-in-Principle (AIP): Before seriously house-hunting, get an IPA from a bank (or an HFE letter from HDB). This gives you an indication of how much the bank is willing to lend you based on a preliminary check of your finances. It's usually valid for 30 days.
3. Property Search & Option to Purchase (OTP): Once you find a property and agree on the price, you'll pay an option fee (typically 1%) to secure the OTP.
4. Formal Loan Application & Letter of Offer (LO): With the OTP, formally apply for the loan. The bank will conduct a full credit assessment and property valuation. If approved, they will issue a Letter of Offer (LO), which is a binding contract detailing the loan terms. You'll need to accept this LO.
5. Legal Conveyancing: Appoint a lawyer to handle the legal aspects of the property transfer and mortgage documentation.
6. Loan Disbursement & Completion: The bank disburses the loan upon completion of the sale.

Tips for Choosing the Right Mortgage

• Compare Interest Rates & Packages: Don't just look at the headline rate. Understand the lock-in period, penalties for early repayment, and what the rate reverts to after any promotional period.
• Consider Your Risk Appetite: Are you comfortable with potential fluctuations (floating rate) or do you prefer predictability (fixed rate)?
• Loan Tenure: A longer tenure means lower monthly payments but more interest paid overall. A shorter tenure means higher payments but saves on total interest. Balance this with your cash flow and retirement plans.
• Fees and Charges: Look out for processing fees, valuation fees, legal subsidies (and their clawback conditions), and prepayment penalties.
• Consult a Mortgage Broker/Specialist: A good mortgage broker can help you compare packages across multiple banks and find one that suits your needs. Their services are usually free for borrowers as they are compensated by the banks.
• Read the Fine Print: Always thoroughly read the Letter of Offer before signing.