Choose Best Home Loan | How to Select Home Loans in Singapore?

Home Loans | Loans

Have you decided to buy a new home and are looking for the finest home loan in Singapore? Are you evaluating interest rates on the market and ready to lock in the best deal? Given that a home loan is likely to be the largest and longest-term financial burden that most Singaporeans will face, it’s well worth learning more about the complexities of home loans. We tell you how to choose best home loan in Singapore. 

What kind of home loan am I eligible for based on the type of property I own?

When it comes to picking a house loan, the one element that will have the greatest impact on your decision is the type of property you own. Here’s a rundown of Singapore’s finance options:

Property type Home loans in Singapore

• HDB BTO (under construction) – You can get an HDB loan / bank loan (floating rate).
• HDB flat (resale / completed BTO) – You can apply for an HDB loan / bank loan (fixed rate) / bank loan (floating rate)
• Private property (under construction) – For this type of property you can get a Bank loan (floating rate)
• Private property (built) – Here you can go for a Bank loan (fixed rate) / bank loan (floating rate)

Needless to say, the HDB loan is only available to those purchasing public housing. However, even HDB flat buyers can obtain a bank loan. If you want to buy a private home, your only option is to use a bank loan (of which there are plenty). And if your property is still under construction, whether HDB or private, the only bank loans accessible to you will be floating rate loans. However, after it is built, you will be able to obtain a full range of lending alternatives, including fixed-rate house loans.

Choose Best Home Loan in Singapore

HDB BTO home loans – HDB loan vs bank loan

In the case of young couples seeking an HDB BTO, the most common option is an HDB concessionary loan, which does not require a cash downpayment (if you have enough CPF). However, it is subject to several eligibility requirements, such as a combined income limit of $14,000, and there is a 2.6 percent interest rate to contend with. Banks, on the other hand, have few (if any) eligibility requirements. They are mostly concerned about your ability to repay them.

Unfortunately, there is a danger because banks normally only offer variable rate packages for unfinished projects. That’s terrible news for individuals who like the security of a fixed rate. A floating rate is exactly what it sounds like: the interest rate is changeable and is tied to either a bank-set rate, SIBOR (which will be phased out in 2024), or SORA. (I’ll explain the distinctions later.)

So, not only do you have to pay more in cash and CPF for your downpayment on a bank loan, but your monthly payments are also vulnerable to a variety of variations. 

Home loans for HDB resale / built-to-order properties – HDB loan vs bank loan

If you’re purchasing a completed HDB flat (i.e. resale) — or possibly refinancing your newly-built BTO — you have a lot more alternatives. You may or may not be qualified for the HDB loan while purchasing an HDB resale flat, depending on your income. If you qualify, the HDB loan is usually a smart choice because it requires a lesser downpayment and is much more flexible. For example, you can loan a modest amount and make partial or full payback early without penalty.

Fixed-rate mortgages are more stable than floating-rate mortgages. The interest rate is fixed for the term of the lock-in, which is typically two or three years. They are normally a little more expensive than floating, but some people are ready to spend a little more for peace of mind, and it helps you manage your financial flow. The one major drawback is that fixed rates are only valid for the duration of the lock-in period. After that, fixed-rate packages revert to floating-rate packages, therefore the stability is not permanent.

Home loans for private property under construction (BUC) are only available as floating loans

If you want to finance a private property that is still under construction, you won’t be able to get an HDB loan, thus you’ll have to go with a floating rate package from one of the private banks. As previously stated, banks only offer variable rates for buildings under construction (BUC). You won’t obtain the security and predictability of a set interest rate. You will most likely be asked to pick between a home loan package that is (a) pegged to the SORA or (b) pegged to a bank-set rate.

What can you do if paying off a bad mortgage? (Choose Best Home Loan)

If you already own a home, you should think about refinancing your mortgage at some point, especially if you have “served” the lock-in period for your existing package. Refinancing is just switching to a new home loan package (whether with the same bank or jumping over to another financial institution).

This is customary and expected for homeowners to do in the third or fourth year of servicing a bank loan because that is when the fixed rates expire and the interest rate typically rises again.

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