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SIBOR is generally more stable while SWAP tend to fluctuate more. However 3-month SWAP has recently stayed consistently lower than 3-month SIBOR for an extended period of time. SOR is also very reactive to currency exchange rates.


Home Loan Comparison Singapore – 7 Mortgage Terms To Choose And Decide On

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The chief purpose of any home loan is to help you fund a property purchase that you cannot otherwise afford to pay fully in cash.

Such is the practice these days that a buyer will most probably end up with a pile of home loan offers to choose from.

Nobody wants to pay more than they have to. But perhaps not surprisingly, the factors and features that home borrowers weigh up to decide on a housing loan does not always come down to costs and interest.

It also comes down to potential costs based on what are the likely actions the borrower foresee that they will take in future.

We monitor the Singapore market for the best mortgages and clients don’t always take up the deals with the best interest rates. They may take up one that has a particular feature that suits their personal plans and needs.

There are so many different housing loans on the market that you can really be bombarded with too much information sometimes.

So how you decide on which home loan to accept depends on how you weigh up the loan terms and features.

Here are the main things that borrower should look at to come to a decision.

1) Loan to value

The most common reason home loan offers are outright rejected by a borrower is due to a low loan quantum.

When you require an 80% loan to value (LTV) and is only offered 70%, it means that you have to fork out the remaining 10% in cash.

If the property value is $500,000, 10% comes up to $50,000. That is a lot of cash to cough out.

Because banks and financial institutions have their own internal policies on lending, they may set a ceiling on loan to value.

Limits can be determined by the type of property like for HDB flat, commercial property, private property, industrial property, building under construction (BUC), etc. Even the district that the property belong to can affect LTV limits.

Cooling measures in the last decade has made LTV eligibility even more confusing.

2) Interest rates

When a borrower obtains housing loan quotes and offers that meet the required LTV, interest rates are the next feature that will be scrutinized between the different offers.

This is when you will be spoilt for choice on the different interest rates that are available.

This is also when you will have to choose between fixed rates, and floating rate loans such as SIBOR pegged rates and SOR pegged rates.

There are also loan packages that have increasing interest rate year on year, reducing interest rates year on year or having the same interest rates throughout the life of the housing loan.

These mortgage deals however, always end with a “Thereafter” rate.

Read more about Singapore housing loan interest rates.

3) Lock in period

What always go along with interest rates is the lock in period.

Generally, if you are to find very low interest rates that are available to you, you can expect there to be a lock in period during the term of that particular rate.

The lock-in period means that should the loan be repaid during it’s active period, then the borrower would be charged a penalty for it.

It is only fair that when a mortgage lender is willing to offer you radical rates, you stay loyal to the lender during that period.

By theory, if you intend to retain the home loan throughout it’s whole lifespan, lock in periods will not be a concern to you.

However, when you have the intention to refinance your home loan by way of a straight refinancing or home equity loan, the lock in period will be a material concern.

You can expect penalty fees if you are to redeem the loan within the lock in period.

4) Term and duration

Although increasing the length of a home loan tenor increases the total interest rates that a person has to pay, this is a factor that people often ignore when deciding on the tenor.

The issue is always on how much will monthly installments be with different tenors because it affects borrowers’ cash flow.

Very often, borrowers decide on a tenor based on the monthly installment they are comfortable in repaying. Not deciding on a tenor based on how much total interest they want to pay, and then accepting the monthly installment tabulated with the home loan calculator.

Just be mindful that longer tenure would mean a lower monthly payment, but comes with more interest charges over the years. And shorter tenure would mean a higher monthly payment but less total interest paid.

5) Monthly Installment

Depending on your personal cash flow, you have to decide how much you can afford to pay each month for the home loan installments.

Banks are usually flexible on tenors as long as they are comfortable that you can afford it with your personal income. TDSR plays a huge role in this.

A lot of borrowers do not put a lot of emphasis on monthly installment amounts when they are using their CPF to service the repayment of the housing loan.

However, monthly repayment amounts will be a critical factor if the borrower is going to use cash.

6) Legal fee subsidies

A mortgage is legally binding and therefore the services of a lawyer is required.

Banks usually have their own panel of appointed lawyers. But most will have no issues if you want to engage your own lawyers to prepare the paper works.

There is a catch though.

The subsidies on legal fees may be compromised if you do not engage the bank’s appointed lawyers.

The subsidy amounts are determined as a percentage to your loan quantum and have a cap of around $2500 to $4000.

7) Fire insurance

Depending on which lender and the nature of the housing loan package that you take up, free fire insurance may be offered to you for up to 5 years.

Although insurance premiums may be immaterial when you compare that to the size of your mortgage, accept them gleefully as long as they are free.

Although these are the 7 home loan features and terms that most commonly determine a borrower’s decision when comparing Singapore home loans, it is not always the complete list.

Different housing loan hunters have different needs and decision making processes and will weigh each feature differently or put considerable importance on factors that are not available on this list. If you want more home loan options, you can contact us by using the contact button on the top right of this page.

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Related Posts

What We Do For You

We Gather And Provide You Information On The Best Housing Loans In Singapore So That You Can Make A Better Decision Based On What Is Available In The Market

Which bank do you recommend for home loans in Singapore?

We don't recommend banks. We recommend you the best home loan that suits your profile and financial position.

How Does SOR Rates Hit Negative Value?

SOR rates are calculated with a complex financial formula, solved with simple algebra. The results of solving the equation therefore depends on the inputs used. Varying inputs that result from economic impacts and indicators can lead to negative value when the formula is solved. Key input indicators include USD/SGD spot rates and USD/SGD forward rates.

HDB loan or bank housing loan?

Our opinion is to always take a HDB concessionary loan if you are eligible for one. One of HDB's objectives is to to provide affordable housing for the people. While a bank is profit driven.

Which bank offers the best home loan deals?

Interest rates and spreads are not all that matter. Don't ignore the closing costs involved. Different banks can have different customized home loans for you. Don't be surprised if you will save more on a home loan that charges more interest because of the lesser closing costs involved. This is especially so if you know that you will refinance your home loan as soon as the lock in period has expired.

Want to see housing loan interest rate trends for the last 36 months?

Enter your email below so we can send it to you.

Get Rates Trend

It makes absolutely no sense to pay more
than you have to on a home loan.

Find the best mortgage rates here

It makes absolutely no sense to pay more than you have to on a home loan.

Find the best mortgage rates here
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