Home Loan Calculator – You Should Definitely Read This Before Using One

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A home loan calculator is a common tool to help you reduce your stress. Good home loan calculators start by getting you to key in some basic information about the property you’re buying. Using this information, the home loan calculator then helps you make the best decision on how big a home loan you are eligible for, and which banks can help provide a suitable home loan for your needs.

But some home loan calculators don’t even reach that step – instead they just take some minimal information, and then recommend you contact their banker or an agent “for more details”. Unless you’re a 2-year-old, you’re probably going to find that attitude very insulting. Other housing loan calculators aren’t even asking you the right questions to give you all the necessary information you need.

Applying for a home loan in Singapore feels like a lot of shows on cable right now. The new government regulations resembles the plot of Game of Thrones (spoiler alert: everyone you love dies), and all the while your property agent is acting like he’s an extra on The Walking Dead (spoiler alert: if he gets to you, you’re dead) and, no matter how hard you try, like The Hunger Games, the odds are NEVER in your favour. So before you end up stressing even more about how to afford that property, here are the three most important questions every home loan calculator should ask you:

1. What type of property do you intend to buy?

Different property types have different rules and regulations that affect your mortgage affordability. For example, the maximum loan tenure is 30 years for HDB flats and 35 years for private properties or Executive Condominiums (EC).

Using a home loan calculator that ignores this crucial question is like not checking the expiry date of that punctured can of baked beans you’re having for lunch. Sooner or later, you’ll find yourself in deep shit.

2. How long do you want your loan tenure to be?

The length of your loan tenure also affects the percentage of your property’s price you’re able to loan. To qualify for the maximum loan, your loan tenure cannot exceed 30 years (for private properties and ECs) and 25 years (for HDB flats). The borrower’s age also cannot cross 65 at the end of the loan tenure. Violating either of these conditions will result in a 20% reduction in your loan amount.

3. Do you want a fixed or floating home loan interest rate?

There’s more to picking the right home loan than just choosing the lowest home loan interest rate. Just like you shouldn’t choose to marry someone based on the size of their breasts (really, please don’t) you shouldn’t just sign with a bank just because they offer you the lowest FIRST YEAR home loan interest rate in Singapore (which is actually how one loan calculator operates). Here’s some information on how to decide between fixed or floating interest rates.

The one home loan calculator we’ve found online that asks these three important questions? They also ask you to select which financial institution you want to get your home loan from before showing you the rates. The last thing you should do when making a decision about the biggest debt you’ll ever incur is rely on some idealised “loyalty” to a financial institution. You want the best deal, not a pat on the back from a bank that only sees you as a statistic. Plus, you’ll probably be jumping ship in several years when it comes to refinancing anyway, so screw “loyalty”.

Let’s look at two property purchase scenarios that you may identify with.

Case Study 1:

Adam is looking for a home loan to finance an HDB purchase. Let’s just say the purchase price is $600,000.

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The maximum loan is 80% of the purchase price. Do note the loan eligibility requirements that a good housing loan calculator will point out. Adam will not be eligible for the maximum 80% Loan-To-Value if he chooses a loan tenure that is longer than 25 years. So although the maximum loan tenure for HDB flats is 30 years, it will affect your mortgage affordability.

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It’s also important for Adam to take note that many home loan interest rates in Singapore will start low in the first year but then often rise to exorbitant levels in the 3rd and 4th years.

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Case Study 2:

Jason is looking for a home loan to finance a private property with a purchase price of $2 million. It is his second property purchase and he is currently servicing one other home loan.

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Once again, do take note of the maximum loan and the loan eligibility requirements. It’s important for Jason to be aware that his Loan-To-Value will be restricted to 50% because of his existing home loan.

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Since he is looking to buy a completed property, Jason also has the option of fixed or floating rate packages. Each has its own pros and cons, and depends on Jason’s current needs. Learn more about fixed and floating rate packages in Singapore here.

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Which Home Loan Calculator To Use?

With over 30 new government restrictions introduced since 2013, obtaining a home loan has become just a little more complicated. (You know, just like finding out your spouse is really your long-lost sibling makes your marriage just a little more complicated.) A good housing loan calculator can help you make an educated decision on how big a home loan you are eligible for, and which banks can help provide a suitable home loan for your needs.

Here’s a home loan calculator that’s free, easy and fast to use and also takes into account all the important points we’ve mentioned above.

Have you tried using a home loan calculator? Did it help you? How would you improve it? Share your experiences with us.