Which Bank Housing Loan Is Best For You?
November 30, 2022
Buying a home is probably one of the biggest purchases of your lifetime. When purchasing a home, you want to save as much as possible and still get a good property.
It is therefore important to ensure that you get the best property and the best housing loan deal. But which bank housing loan is best?
This is a question that most people ask themselves before they start their home-buying journey. This article will provide you with the necessary information so you can answer the question which bank housing loan is best?
How To Get A Bank Home Loan
Before you apply for a bank loan, you need to assess your needs. This assessment will determine whether you want a flat or condo. After settling on the property of your choice, it’s important to do the following:
Check Your Maximum Loan Amount
To check the maximum loan amount, you can consider the loan-to-value (LTV) ratio, the total debt servicing ratio (TDSR), and the mortgage servicing ratio (MSR).
The LTV ratio for a HDB loan is 80%, while that of a bank loan is 75%. This means the maximum loan you can get is 80% or 75% of the value of the property, depending on the lender.
The TDSR measures the portion of your monthly salary that goes into repaying debts. You should have a TDSR of 55%. In simple terms, you are only allowed to use 55% of your income on debt. This includes your current housing loan.
The MSR is capped at 30%. It is the portion of your income that you use to pay property loans, including the current application.
You need to take into account all these metrics when determining the maximum loan amount you are likely to get from the lender.
Apply For A HLE Letter Or Get An In-Principle Approval (IPA)
Those who opt for a HDB loan will need to apply for a HDB loan eligibility (HLE) letter. You need to submit income documents to HDB, and after assessment, it will provide you with a HLE letter.
The letter contains the loan approval, the amount you are eligible for, and the interest rate.
Borrowers who choose a bank housing loan must obtain In-Principle Approval (IPA). This is an estimate of how much the bank is willing to offer you.
Apply For The Home Loan
The HLE letter is valid for six months and the IPA is valid for 30 days.
During this period you should pay the Option To Purchase (OTP) fees. After paying the fees, you need to pay the downpayment for the property and follow up on the loan approval.
Types Of Home Loans
In Singapore, you can get housing loans from either the bank or HDB.
Home Loans For Private Properties
If you want to buy a private property, apply for a home loan from a bank or financial institution. A bank will give you a home mortgage to purchase private properties that are under construction or completed, as well as resale private properties.
Home Loans For HDB Properties
HDB loans are available to Singapore citizens who would like to buy HDB flats. To qualify for this loan, your income should be lower than the maximum and you should not own other private properties.
HDB Loan Vs Bank Loan
HDB loan vs bank loan, which one should you apply for? Before you opt for a home loan, you need to answer this question on your own terms.
In this section, we look at the main differences between the two so you can make an informed decision.
A bank loan can be used to purchase both HDB and private properties. On the other hand, HDB loans can only be used to purchase HDB properties.
The interest rates offered by banks fluctuate depending on the Singapore Interbank Offered Rate (SIBOR) or the Singapore Dollar Swap Offer Rate (SOR).
Most of the time, banks offer lower rates of between 1.2-2.2% per annum as compared to HDB, which offers 2.6% p er annum.
The repayment amount for HDB is consistent because the interest rate is fixed. This makes it easier to plan your finances.
Banks’ repayment amounts vary from one month to the next as the rates depend on the SIBOR or SOR.
The LTV ratio of a HDB loan is capped at 80% as of 30 Sep 2022, while that of the bank is at 75%.
This means that if you opt for a HDB loan, you will need to raise a downpayment of 20%. You can use your CPF savings to pay for the downpayment.
If you opt to apply for a bank loan, you will have to pay a 25% downpayment. You can use your CPF savings to pay 20% and pay 5% in cash.
HDB will not charge a penalty if you want to pay the housing loan before the scheduled time. However, the opposite is true for banks, which charge 1.5% for early repayment.
Late Payment Fees
HDB charges you a penalty of 7.5% per year if you fail to make your payment on time. Banks are less forgiving – they charge $50 for every late payment you make.
Fixed Home Loan Rates Vs Floating Home Loan Rates
A fixed home loan rate remains the same over a given period of time. A fixed home loan rate has the following advantages:
Protects You From The Rising Cost Of Loans
The repayment amount for a home loan with a fixed interest remains the same over the period. This means there is no increase in the repayment amounts.
It Makes It Easy For You To Plan Your Cashflow
Fixed repayment amounts make it easy for you to plan your finances. You know how much you are expected to pay each month, which means you can plan your finances accordingly.
Most loans offered in Singapore have a fixed interest rate for three to five years. During this period, most lenders don’t allow refinancing of the loans.
Floating home loan interest rates fluctuate daily depending on the SIBOR or SOR rates. When the interest rate changes, your monthly repayment amount will also change.
Floating interest rates are ideal in the following circumstances:
Interest Rates Are Expected To Fall
Opt for a floating rate interest rate if you expect home loan interest rates to drop. A floating interest rate may give you a chance to save on loan costs.
You Understand How The Loan Market Works
If you understand how the loan market works, then you can sign up for a floating loan interest rate. You should be able to monitor the SIBOR or SOR rates.
It’s important to note that you will not be able to refinance your loan every time the interest rates go up. As a result, you may end up with a higher housing loan cost.
How To Choose The Best Home Mortgage Loan
There are numerous home loan packages available in Singapore. Choose a housing loan that suits your needs. Here is what you should consider when selecting a home mortgage loan.
Home Loan Interest Rates
The interest rate of your housing loan determines the repayment amounts. The higher the interest rate, the more expensive the home loan.
Plus, the overall cost of your loan will go up. When selecting a mortgage loan, make sure you consider the interest rate.
Type Of Home Loans
Home loans are either fixed or floating. Fixed-rate loans will have the same interest rate for a period of three to five years. This means you have a fixed repayment amount for that period.
A floating interest rate typically changes over time, and the repayment amount changes based on that. If you expect interest rates to go up, choose a fixed-interest mortgage loan.
In Singapore, the HDB home loan interest remains the same for long periods. This is a good option for those who are risk-averse.
Most banks have a lock-in period of three to five years . During this period, you will not be able to refinance your home loan.
If you want to repay your loan in advance or cancel the loan during the lock-in period, you will incur a penalty. Most banks charge a 2-5% penalty on cancellation or early repayment.
Which Bank Has The Best Floating Home Loan?
The best floating home loan will have a lower interest rate or a longer lock-in period. Based on this, here is a summary of the banks with the best floating home loans*.
|Bank||Interest Rate||Lock-In Period||Minimum Amount|
|UOB 3M SORA||1.6% + 0.7% per annum||Two years||$500,000|
|OCBC 3M SORA||0.98%||Two years||$300,000|
|DBS 3M SORA||1%||Two years||$100,000|
*Information correct at time of publication
Choose A Home Loan That Suits Your Needs
There is no one-size-fits-all answer to the question which bank housing loan is best?
This is because this ultimately depends on your individual circumstances.
However, we hope that our overview of the different types of bank housing loans available has given you a better idea of what options are available so that you can choose the best. As always, be sure to do your research before making any major decisions.
Another option where you can get loans at low interest rates is Credit Thirty3. We offer loans at competitive rates, and we have packages to suit your needs.