From 30 Sep 2022, the Singapore government lowered the loan-to-value (LTV) ratio for HDB loans from 85% to 80%. Consequently, the downpayment for HDB flats increased from 15% to 20%.
However, being able to pay the downpayment is one thing, but regularly repaying monthly mortgages is a different concern altogether.
Being in a high-interest home loan market might make you wonder: which bank housing loan is best?
With many banks offering a plethora of interest rates and lock-in periods, you could be at a loss if you didn’t know how to explore your options.
In this guide, you’ll learn how to get a bank home loan, types of home loans, the difference between HDB and bank loans, fixed and floating home loans. We’ll also show you how to find the best home loan in Singapore.
Follow the three steps below to get a bank home loan in Singapore.
Before applying for a home loan, estimating the HDB, landed property, or condo home loan you can get is crucial.
This maximum loan amount depends on the loans you currently have and is measured by the Total Debt Servicing Ratio (TDSR) or Mortgage Servicing Ratio (MSR).
The TDSR refers to the portion of a borrower’s monthly income that goes towards loan repayment. It must not exceed 55%.
The MSR gauges how much of your gross monthly income goes toward your mortgage. For a HDB loan, the maximum permitted MSR is 30%.
You can use the MSR and TDSR calculators available online to calculate your maximum loan amount.
If you’re planning to apply for a home loan from HDB, you need to get a HDB Loan Eligibility (HLE) letter issued by HDB. On the other hand, if you’re planning to take a bank mortgage loan, you must get an IPA from the bank.
Simply put, the HLE and IPA are statements issued by the HDB and the bank respectively that mention and promise you the maximum loan amount.
After you receive the HLE or IPA, you’ll have almost 30 days to pay the Option-To-Purchase (OTP) fees for your HDB or private property.
Upon successful fee payment, you’ll have 21 days to use the OTP, make the downpayment, and get approval for your desired bank home loan.
Warning: HLE/IPA are valid for up to 30 days, while the OTP is valid only for up to 21 days.
There are two types of home loans you can apply for in Singapore. This distinction is based on the nature of the property for which the loan is being applied.
Here are the two types of property-based home loans.
You can finance the mortgage of these properties by applying for an HDB housing loan. However, borrowers must meet a few eligibility criteria such as citizenship to apply for HDB loans.
Money lenders like CreditMaster offer customised loan packages for private and HDB properties to eliminate the hassle of changing your go-to loan providers.
As mentioned above, private properties in Singapore can only be financed by banks and money lenders.
Based on the extent of risk you’re willing to take and your monthly repayment budget, you can choose from various home loan packages with different interest rates and lock-in periods.
Depending on whether the property to be financed is under construction or completed, there are two types of private properties these home loans can finance.
Note: You can’t use HDB loans to finance private properties.
Needless to say, the first part of the answer to “which bank housing loan is best?” depends on the kind of private property you want to finance.
To finance a HDB property in Singapore by applying for a HDB housing loan, you must meet the following requirements:
Moreover, the interest rate for HDB housing loans is fixed at 2.6%. You can calculate it by simply adding 0.1% to the Central Provident Fund Ordinary Account (OA) interest rate.
As a result, theoretically, HDB housing loan interest rates are subject to change.
So when you think about “which bank housing loan is best?”, it’s necessary to remember that a HDB loan has a higher interest rate than a bank loan – although it is a fixed rate.
Your risk appetite and financial status decide whether you should go for a HDB or a bank loan.
If you dislike taking risks, it’s better to go for HDB loans as they offer a fixed interest rate and lower downpayment.
However, if you’re open to risks and possess a healthy credit score and healthy finances, you can purchase bank home loan packages with lower interest rates than HDB loans.
Below is a detailed point-to-point comparison between HDB and bank loans.
|Parameters||HDB Loans||Bank Loans|
|Interest Rates||2.6% (fixed)||1.55-1.85% (increases after two to three years)|
|Downpayment||20% CPF||20% CPF, 5% cash|
|Early Repayment||No penalty||1.5% penalty|
|Late Repayment||More lenient||Less lenient|
Interest rates, whether fixed or floating, play a massive role in helping loan applicants decide what bank housing loan is best.
Let’s compare fixed and floating home loan rates to help you decide which one is more suitable.
As the name suggests, fixed interest rates remain the same throughout the loan tenure. This gives more consistency and stability when laying down long-term financial plans.
This type of interest is ideal for borrowers with a lower risk appetite, as fixed interest rates don’t fluctuate with the market. However, fixed interest rates are usually higher than floating interest rates.
Note that fixed interest rates are independent of market variations only during the lock-in period. Once the lock-in period is over, the interest rates become pegged to market rates.
Unlike fixed interest rates, floating interest rates are volatile and subject to market fluctuations. Typically, these rates are pegged to Singapore Interbank Offer Rate (SIBOR), Singapore Overnight Rate Average (SORA), Board Rate or Fixed Deposit Home Rate (FHR).
Warning: SIBOR-based home loans will be discontinued from 2025.
This type of interest is suitable for those with a higher risk appetite. Low market rates can result in substantial monthly savings, but high market rates will make you pay more interest.
Nevertheless, the majority of banks will inform you 30 days prior to when interest rates are about to change. In addition, they will provide you with an option to refinance by fully repaying the loan amount or changing to a different lender with lower interest rates.
When it comes to floating interest rates, banks also offer SIBOR-based loans.
You can either go for a 1M SIBOR loan, where the interest rate changes every month, or 3M SIBOR loans, where the interest rate changes every three months.
Note: 3M SIBOR loan packages are more stable than 1M SIBOR loans.
For better readability, the above comparison is summarised in the table below.
|Parameter||Fixed Home Loan Rates||Floating Home Loan Rates|
|Interest Rate||Higher||Lower (subject to change)|
|Pegged To Market||No (after lock-in period)||Yes|
A suitable home mortgage loan can be a difficult choice to make for most people due to the sheer variety of options out there.
Apart from the variable rates, which bank housing loan is best depends on the market atmosphere.
Here are a couple of factors you must consider before choosing the best home mortgage loan:
Almost 80% of home loan shopping in the market depends on the interest rates of the various loan packages.
It never hurts to maintain a good credit score, as it can open other financial opportunities for you.
Most borrowers like to refinance their loans every two to four years to take advantage of the declining market interest rates in the past few years.
So applicants should look for minimum refinancing restrictions such as lock-in periods, legal fees, valuation fees, and premiums.
Below are the best floating home loans* for private properties (assuming a $500,000 principal amount and a 25-year loan tenure).
Bank Interest Rate (1st Year) Lock-In Period UOB 3M SORA 1.6% Two years DBS Board 2.7% Two years DBS Board 3.15% 0 years OCBC 3M SORA 3.04% Two years DBS 3M SORA 3.24% Two years
*Information correct at time of publishing
United Overseas Bank Limited’s (UOB) 3M SORA home loan package is one of Singapore’s best floating home loans. It offers a best-in-class interest rate of 1.60% + 0.7% per annum. However, if you are inclined towards refinancing your loan, the DBS FHR6 is ideal, as it has no lock-in period.
Besides these banks, licensed money lenders in Singapore, like CreditMaster, offer affordable loans and reasonable interest rates.