Understanding The Basics Of Housing Loan In Singapore – Part 1
Buying a house is an exciting event. It will probably be the biggest investment you will make in your life. If this is your first time buying a house, it might struggle to understand of all the information banks throw at you when you need a home loan. Here at iMoney, we LOVE breaking down complexities into simple bite sized chunks. Here is a simple guide to help you understand how a housing loan in Singapore work:
Two Common Types Of Housing Loans in Singapore
Banks usually offer the following housing loans: 1) Fixed Interest rate loan, and 2) Floating rate Loans (or Flexi-Loan).
A fixed rate Loan requires you to pay a fixed amount each month for a set period of time. This predictable payment each month allows you to better control your cash flow. However in this type of loan you get a guaranteed interest rate for the first few years of the loan term. After the fixed term, the interest rate is benchmarked to a reference rate.
In Floating rate Loans, there are no fixed periods and interest rate is variable for the whole term of the loan.
Singapore Housing Loan Interest Rate
Fixed Interest rates for housing loans in Singapore are usually as charged. The floating rate is generally pegged to Singapore Interbank Offered Rate (“SIBOR”) or Swap offer rate (“SOR”). Bith these reference rates are fixed by the Association of Banks in Singapore. For example, SIBOR + 1.25%. Want to know the lowest home loan interest rates in Singapore? Check out our Home Loan Comparison Table!
What is lock-in period?
Banks normally charge a penalty of 1% to 2% (on your original loan amount) if you fully pay off your home loan within the first two to three years. This “two to three year” period, where you will incur a penalty or a fee for early settlement, this period is the “lock-in period” of your home loan.
Margin Of Loan or Margin Of Financing
How much you can borrow from the bank depends on a number of things, including 1) the market value or purchase price of your house, 2) number of residential properties owned, and 3) the borrower’s profile (e.g. age, income level, etc.).
Banks would normally lend up to a maximum margin of loan of 80% for first property. This means that for a SGD500,000 house, you can borrow up to SGD400,000 from the bank, with you need to pay the rest of the amount up front. For the second property the ratio of margin of loan to house value can go as low as 40%, depending on borrower’s age and loan tenure.
Now that you know the basics of housing loan in Singapore, find out which bank offers the best housing loan interest rate!