Buying a flat or any other property is a huge investment, and since a home loan is something you will be living with for up to 35 years of your life (sounds like marriage), it's worth taking the time to find the loan that really suits your style.
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Although the maximum loan and the time you get to repay it will be almost the same at all banks, there are several important differences to look out for when choosing an offer.
This is probably the most important thing to consider when taking out a loan, as interest rates can make or break your dreams of owning a home. Banks in Singapore calculate interest rates in different ways, and often allow you to choose which method you prefer for your loan.
1. A Bank's Board Rate
Many banks offer interest rates pegged to an Internal Board Rate which is basically an interest rate set by the bank itself. These rates have been pretty stable and can actually be a good choice if they continue to follow this pattern, but the lack of transparency in how banks set these rates make them a poor choice for long-term planning.
You pretty much just take the rates as they come, with a 30-day notice from the bank before interest rates change. Interest rates will usually be pegged at a discount below the Internal Board Rate.
Such home loans are known to be floating or variable.
SOR (Swap Offer Rate) is based on the foreign exchange rate of Singapore dollar against the US dollar. Rates pegged to the SOR are some of the more volatile interest rates available, as the SOR fluctuates along with the US dollar.
SOR-based interest rates on home loans are pegged at a margin above the SOR. A home loan pegged to SOR is a good choice if you enjoy riding financial rollercoasters. They only make sense if you expect interest rates to keep falling, which isn't the case right now.
SIBOR (Singapore Interbank Offered Rate)-based interest rates are far more stable than those based on SOR, and fluctuations are more gradual. Unlike SOR rates that follow the US dollar, these interest rates are based on the domestic market.
A home loan pegged at a margin above SIBOR is a good choice if you prefer stability.
Both SOR and SIBOR operate transparently, so you can keep an eye on where interest rates are headed. Home loan interest rates can be pegged to either one of these indexes on a 1-month or 3-month basis.
When you choose the 3-month option, your interest rates will be fixed for 3 months at a time, but you will pay a higher interest rate than you would with the less stable 1-month option.
Want to know more about SIBOR and SOR? Here's BestCreditCards.sg's guide to SIBOR and SOR home loans in Singapore.
4. Fixed Home Loan Rates
Fixed loan packages mean that the rates are fixed for the first few years of the loan tenure, usually the first 2 to 3 years, after which the rates go back to floating rates. You can't find fixed home loan rates for the whole duration of a loan tenure in Singapore, unless it is an HDB loan, which is fixed during the whole loan tenure.
A fixed rate package is ideal if you are expecting interest rates to rise over time. Throughout 2015, interest rates in Singapore have been increasing, and they are expected to keep rising in 2016 and beyond. You can check out this article on Fixed Home Loans, where we answer if now is the best time to get one.
5. Home Loans Linked To Fixed Deposit Rates
Fixed deposit (FD) rates have been rock-bottom for many years in Singapore, but that is being played as an advantage by two banks in Singapore, namely DBS and OCBC, who have decided to come up with home loan packages tied to their low fixed deposit interest rates.
The perception is these FD rates are low, and thus home loan rates linked to their FD rates will be low as well.
DBS offers an 18-month fixed deposit home rate ('FHR18'), whereas OCBC has a 36-month fixed deposit rate. DBS and OCBC add a certain percentage on top of these FD rates for the interest rate of the housing loan.
DBS's 18-month FD rate stands at 0.6% currently.
OCBC's 36-month FD rate is 0.65% at the moment, and it has stayed at this level since 1 November 2011.
Needless to say, as interest rates rise, so will these fixed deposit-linked home rates, but they are less volatile than SIBOR as banks will be slower in repricing their FD rates.
Such DBS home loans or OCBC home loans are proving very popular among borrowers, especially people who are looking to refinance to a lower loan rate. Grace Cheng
If you are buying an HDB property, bank loans can only cover 80% of the property cost, unlike HDB loans which can cover up to 90% of the cost.
That means that before applying for a bank loan to finance your new home, you should make sure to have plenty of cash on hand as at least 5% of the 20% down payment must be paid in cash.
The remaining 15% can be paid in part by your CPF up to the Housing Withdrawal Limit.
If you are using the bank loan to finance an HDB flat, you will benefit from paying a down payment of 40% (10% cash) if you can afford it, as you can enjoy more favourable loan conditions like a loan tenure of 30 years (which would be 25 years with a 20% down payment).
If you are purchasing a private property (not HDB), you can enjoy loan tenures of up to 35 years if you make a large enough down payment.
You cannot use a housing loan to pay the down payment on a property. If you don't have all the money you need, you might have to save up for a while longer before you have enough for the down payment.
Getting the right loan has a lot to do with the type of property you want to purchase.
HDB flats, including DBSS, BTO and SDB flats are all classified as public property. Executive condominiums are classified as public property for 10 years after construction, after which they become private property.
Private property includes semi-private executive condos, landed properties and condominiums.
If you buy private property, a bank loan is your only choice for financing.
Public properties (except for executive condos) can also be financed with an HDB loan.
If you buy public property, you will usually be eligible for a housing grant. We have a comprehensive Guide to HDB Flat Grants here, which you should check out if you are interested.
The only type of private properties that you can receive a housing grant for are executive condos over 11 years old.
If you are at least 21 years of age and under the age of 65, you can apply for a home loan from a bank.
If you are over 65, you won't usually be eligible for a home loan, as the loan tenure has to be complete before you hit 75.
While HDB loans are only available to Singapore citizens, bank loans are also available to permanent residents and even foreigners if they meet certain criteria. Here you can read about the differences between HDB loans and bank loans.
We recommend that you compare home loan packages from as many banks as possible in Singapore.
Don't accept a bad deal just because a bank pre-approves you.
Remember that this is a long-term contract you're signing up for, so take your time and don't settle for less than the home loan that's best for you.
Compare the best home loan rates in Singapore using BestCreditCards.sg's Home Loan Genius tool today to see how much you can save!