Types of Home Loans in Singapore
With a variety of offerings of home loan products in Singapore, it is not surprising that many consumers struggle to differentiate between the different types of home loans.
In general, home loan products in Singapore can be categorised into two different groups – conventional and HDB home loan. Let’s take a quick look at the difference between the two:
Conventional Home loan
Conventional home loan accounts for a large majority of the total home loans in the market. In a conventional home loan, a borrower agrees to repay the loan amount together with interest over an agreed loan period.
Banks normally charge either a 1) fixed (fixed only for first few years then converts into floating) or 2) variable interest rate on conventional home loans. Most home loans in Singapore are variable interest rate loans, with the interest rate tied to the Singapore Interbank Offer Rate (SIBOR).
In an increasingly competitive environment, banks are forced to innovate and expand the types of home loan products being offered.
You can get a home loan product that comes with a linked current account. The interest earned on your current account will offset the interest payable on your home loan. Paying less interest would mean that you will be reducing the years to pay off the loan and enjoy savings along.
HDB Home Loan
HDB loans are available only for HDB properties and have a few restrictions attached. These include: that at least one buyer must be a Singapore citizen, buyers’ monthly income must not exceed $10,000, buyers must not own any private residence (in Singapore or overseas) and buyers must not have taken more than two previous HDB loans
The HDB Home Loan rate is currently higher than rates offered by banks and financial institutions and has remained to be 2.6% for more than 10 years. Therefore it offers more stability in terms of payments. Currently, HDB also offers a higher loan to value of 90% compared to 80% offered by banks.
If you get a bank loan, a minimum of 5% of the initial 20% down payment has to be in cash. If you take an HDB loan, you can use your CPF money to cover the entire down payment. HDB loans also don’t have any prepayment penalty in most cases.
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