Just bought a property and looking for the best home loan in Singapore? We review the most affordable bank loans of 2018 based on different types of properties – HDB BTO flats, private property and resale flats.
The one factor that will impact your home loan package the most is whether your property is: (a) under construction (i.e. HDB BTO or private property that’s still being built) or (b) completed (i.e. HDB resale or a built private property).
Given the ubiquity of BTOs (and popularity of new condo launches) in Singapore, we’ll cover the best home loans in Singapore for BTO & uncompleted private property first.
If you’re planning to buy a resale flat or an already-built private property, click here to skip straight to the best home loans in Singapore for completed property section.
We will also take a look at some of the things you need to consider when getting a home loan for each property type, as there are different regulations and details to consider based on what you are buying.
Best home loans in Singapore for HDB BTOs or BUC (private property under construction)
In the case of young couples getting a BTO, the standard route is often an HDB loan as it doesn’t require a cash downpayment. However, it also comes with various eligibility conditions (income ceiling, for example) and there’s that 2.6% interest rate to contend with.
You can find a cheaper deal with a bank loan. Unfortunately, there’s an element of risk as banks typically only offer floating rate packages for uncompleted properties. That’s bad news for those who would like the certainty of a fixed rate.
On the other hand, some of the interest rates on offer are pretty good – as low as 1.55% p.a., based on current rates.
Here are the 3 best home loan packages (as of Aug 2018) for BUC/BTOs. Banks do change their interest rates and home loan packages every month or so, so be sure to check MoneySmart’s Home Loan Calculator for the latest rates.
|Type of loan||Floating rate (FD-linked)||Floating rate (board rate)||Floating rate (board rate)|
|Benchmark rate||FHR 8 (DBS 8-month fixed deposit rate), currently 0.2%||MR (board rate), currently 0.85%||SRFR2 (Maybank board rate), currently 4.5%|
|Year 1 interest rate||FHR 8 + 1.4% (i.e. 1.6%)||MR + 0.7% (i.e. 1.55%)||SRFR2 – 2.9% (i.e. 1.6%)|
|Year 2 interest rate||FHR 8 + 1.4%||MR + 0.7%||SRFR2 – 2.9%|
|Interest rate thereafter||FHR 8 + 1.4%||MR + 0.85% (i.e. 1.7%)||SRFR2 – 2.9%|
|Partial repayment penalty||–||–||–|
|Full redemption penalty||–||–||–|
|Minimum loan amount||$100,000||$100,000||$200,000|
|Property requirements||BTO/BUC||BUC only||BUC only. No valuation report needed|
When comparing the best home loan packages from different banks, there are 3 things to consider: when is the TOP/CSC of your property, what is the monthly instalment of the loan, and whether there is a lock-in period.
When is the TOP/CSC expected?
TOP stands for Temporary Occupation Permit, which marks the earliest the property can be occupied. For HDB BTO flats, the TOP date is typically 3 years down the road. Your home loan is fully disbursed on the TOP date.
CSC stands for the Certificate of Statutory Completion. This certificate is issued when properties are considered completed. For private property, CSC takes about 1 year from the TOP date. When CSC is obtained, the bank will disburse the remaining amount of the home loan to the developer.
It is therefore important to consider how long you need to wait before the TOP and CSC are issued.
Basically, you want to make sure you are not choosing a package that changes interest rates too quickly each year, as you would be using all the best years of the package on the small amounts disbursed to the developer prior to CSC.
So a package like UOB’s, where interest rates start out low but climb up in year 3, may be less appealing than that of DBS or Maybank, which maintain the same 1st year rate thereafter.
What is the monthly instalment?
After considering the period before the CSC, your next priority is of course the monthly instalment of the home loan package. Because these loans are all floating rate packages, your monthly instalment will vary.
While the amount of the principal you repay is the same month to month, what causes the fluctuation is the interest rate. For example, the DBS home loan interest rate is based on FHR 8 + 1.4%.
The first half (FHR 8) is the “floating” portion of the home loan package. In this case, it means that your home loan interest rate for that month is determined by the 8-month average fixed deposit rate of that month. This changes often and you’ll need to monitor the fluctuations. Right now, FHR 8 is only 0.2%, but in the past it has been as high as 1.5%.
The second half (+ 1.4%) is known as the “spread” and represents the bank’s “profit”. In this case, it is 1.4% and doesn’t change throughout the year. The “spread” typically increases significantly after 2 to 3 years. Ideally, you want them to be low for as long as possible.
Is there a lock-in period?
These days, for buildings under construction, banks typically don’t enforce a lock-in period. However, as I mentioned above, there are usually penalties – i.e. the cancellation fee – for trying to switch home loans while the building is still under construction.
Best home loans in Singapore for HDB resale or completed private property
For completed properties, buyers are able to choose from all the different home loan packages banks offer.
Take note that for completed properties, there is usually a lock-in period for your mortgage, and in the event that you want one without a lock-in period, expect interest rates to be higher.
Here are 3 of the best home loan packages on the market for completed properties (as of Aug 2018). Again, this is for illustration purposes – use MoneySmart’s Home Loan Calculator for the latest rates for your case.
|Bank||Standard Chartered||HSBC||Bank of China|
|Type of loan||Floating rate (FD-linked)||Floating rate (FD-linked)||2 years fixed rate package|
|Lock-in period||2 years||2 years||2 years|
|Benchmark rate||FDR 36M (StanChart’s 36-month fixed deposit rate), currently 0.72%||TDMR 24 (HSBC’s 24-month fixed deposit rate), currently 0.65%||3 month SIBOR, currently 1.62%|
|Year 1 interest rate||FDR 36M + 0.93% (i.e. 1.65%)||TDMR 24 + 1% (i.e. 1.65%)||1.85%|
|Year 2 interest rate||FDR 36M + 0.93%||TDMR 24 + 1%||1.85%|
|Interest rate thereafter||FDR 36M + 0.93%||TDMR 24 + 1%||3M SIBOR + 0.7% (i.e. 2.32% based on current SIBOR)|
|Partial repayment penalty||1.5%||1.5%||1.5%|
|Full redemption penalty||1.5%||1.5%||1.5%|
|Minimum loan amount||$500,000||$200,000||$500,000|
|Property requirements||HDB/private||HDB/private. Minimum 500 sqft||Private property only. Minimum 500 sqft|
|Promotions||–||$530 Isetan vouchers (expires 31 Aug 2018)
Free Home Assist (up to $150 per visit)
When it comes to completed properties, here’s what you should look out for: whether the interest rate is fixed or floating, what the monthly instalment is, and whether there is a lock-in period.
Should you go with a fixed or floating rate package?
Choosing between a fixed or floating rate depends on your risk profile and your cash flow. A fixed rate package is always priced higher than floating rates, but with the assurance that your monthly repayment amount will not fluctuate during the fixed duration.
For example, Bank of China is offering a fixed rate package where the interest rate stays at 1.85% for the first 2 years. This is higher than the projected 1.65% of the other 2 floating rate home loans. However, some people are willing to pay a bit more for that peace of mind, and it makes managing your cash flow easier.
In general, floating rates are better if you expect interest rates to go down or stay low. Fixed rates are better if you expect interest rates to go up. However, do note that eventually, fixed rate packages will still revert to floating rate packages, so the stability does not last forever.
What is the monthly instalment?
This is of course how much you need to pay the bank each month for the loan that you have borrowed. Depending on the nature of the home loan you are on, the exact amount you have to pay each month may change slightly.
The monthly instalment for a floating rate is often based on SIBOR or pegged to a fixed deposit interest rate. In general, SIBOR is more volatile, and while it has been relatively low over the past decade, it has slowly been rising since 2015, and does not look like it’s going to drop below 1%.
In fixed deposit-linked home loan packages, your home loan interest rate is pegged to a bank’s fixed deposit interest rate. These are seen as more stable, because raising FD rates will cost them money. (That’s why non-promotional fixed deposit interest rates are usually peanuts…) That said, banks can always raise their fixed deposit rates.
Finally, the most stable rate of all is the fixed rate, where there’s no chance of fluctuation in your monthly repayments, at least for the first couple of years that the bank has committed to.
Is there a lock-in period?
Most home loan packages for completed properties have a 2-year lock-in period. So make your decision wisely, since there is a heavy penalty if you change your mind during the lock-in period.
In many cases, especially for fixed rate packages, the interest rate will rise after the lock-in period. This means that if you’re unable to find a competitive rate to refinance to after 2 years, you may be stuck with higher rates. Read this guide to refinancing your home loan – it’s easier than it sounds!
Final note: An affordable home loan may not always be the best home loan
While the above examples are the most affordable home loans in Singapore for new purchases, they may not necessarily be ideal for your current financial situation, and your personal goals. As SIBOR is expected to rise in the near future, you should be looking for advice that is personalised for your needs.
Also, if you currently own a home already, you might want to consider refinancing your home loan. This allows you to switch over to a new home loan package if you are out of your lock-in period and might potentially help to save quite a bit of money.
Either way, it’s important to make sure you take a home loan package that suits your needs, and not just jump at the cheapest rate available.
MoneySmart’s Mortgage Specialists can easily assist you through the entire home loan application process and advise you on what would work best for you. You can simply head over to the MoneySmart Home Loan Wizard and let our team do the rest.
Speak to one of our mortgage specialists to find out which bank is offering the best home loan in Singapore for your particular needs.
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