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Buying a home in Singapore is one of the most significant financial decisions a person will make. Whether upgrading from an HDB flat to a private property or purchasing your first home, understanding how mortgage loans work is essential. Mortgage loans in Singapore include government-backed HDB loans and private housing loans from banks or financial institutions, each with its terms, rates, and eligibility criteria.
HDB Loans Offer Stability with Strict Eligibility
HDB loans are designed for Singaporeans purchasing new or resale flats under government schemes. These loans provide predictability by offering a fixed interest rate pegged to the CPF Ordinary Account rate, which remains low and stable. However, access to this type of loan is subject to strict criteria, such as citizenship, income ceilings, and property ownership limits.
Applicants must also ensure they have not taken more than one previous HDB loan and cannot own any private residential property locally or abroad within the last 30 months. These requirements ensure that HDB loans remain accessible to those with genuine housing needs. If you’re eligible, the stability and low initial cash outlay make this a practical starting point.
Down Payment Requirements Differ
HDB loans require only 20% down payment of the property value, and the full amount can be paid using CPF Ordinary Account savings. This is especially helpful for young buyers or families with limited cash flow. In contrast, private mortgage loans demand a higher cash outlay. Borrowers must pay at least 25% down, with 5% in cash and the remaining 20% through CPF or cash.
This difference can significantly affect buying decisions. If you’re considering upgrading from an HDB flat to a private home, factor in how much liquid cash you need to meet these upfront costs. This becomes even more crucial for those entering the market during rising property prices.
Loan-to-Value Limits and Total Debt Servicing Ratio Matter
Another critical aspect is the Loan-to-Value (LTV) ratio, which affects how much you can borrow. HDB loans allow borrowing up to 80% of the flat’s value, while private mortgage loans usually cap the LTV at 75%. However, this limit can be lower depending on existing housing loans and loan tenure.
Additionally, the Total Debt Servicing Ratio (TDSR) framework applies to all property loans in Singapore. This restricts the proportion of a borrower’s gross monthly income that can go toward repaying loans, currently set at 55%. Buyers need to factor in all existing liabilities before applying, as exceeding the threshold results in loan rejection or reduced approval amounts.
Private Mortgage Loans Offer Flexibility at a Cost
For those moving into the private property market or those who do not meet HDB loan requirements, private mortgage loans are the go-to solution. These loans are offered by banks and financial institutions with varying interest rates, usually tied to market benchmarks such as SORA or internal board rates.
One key advantage is the flexibility in loan tenure and structure. Borrowers can choose between fixed and floating rates, or hybrid plans, depending on their risk appetite and financial plans. However, this flexibility comes at a cost, as rates may fluctuate significantly. It’s essential to keep track of rate cycles and be prepared for changes in monthly repayments.
Refinancing Options Depend on the Loan Type
HDB loan borrowers may refinance their loan with a bank for better interest rates, but they cannot switch back to an HDB loan once they’ve moved out. This is a one-way route, and those considering the switch must weigh short-term savings against long-term predictability.
Private mortgage loans, on the other hand, can be refinanced across various banks, giving homeowners more flexibility to seek better deals when market rates change. However, refinancing comes with legal and administrative costs, which should be carefully calculated to ensure the benefits outweigh the expenses.
Penalties and Lock-in Periods Vary
Different loan providers impose penalties for early repayment or refinancing within the lock-in period. HDB loans have no such lock-in period or penalty, allowing for flexibility in repayment and full settlement. Private mortgage loans, however, usually come with a lock-in period of two to three years. Exiting the loan before this term could result in hefty fees.
Understanding these terms is vital if you plan to sell your property or make large repayments ahead of schedule. Always examine the clauses around partial repayments, full settlement, and refinancing before signing any agreement.
Understand the Road Before You Upgrade
Moving from an HDB loan to a private mortgage loan in Singapore can open doors to more property choices and investment potential, but it comes with increased complexity and financial responsibility. By understanding the distinctions and planning, homeowners can navigate the mortgage process with clarity and confidence.
For more information about property loan services, contact RHB Bank today.
