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Best Housing Loan for Your Condo or Landed Private Property in Singapore

Q: How does the lock-in period affect my flexibility in choosing the best home loan option for my private property?

The lock-in period is a crucial factor to consider when choosing a housing loan for your private property. During this period, typically one to three years, you cannot refinance your loan with another lender without incurring a penalty. This can limit your flexibility to switch to a more favourable loan if interest rates drop. Carefully evaluate the lock-in period and potential penalties before committing to a loan package. If you are unsure about how the lock-in period will affect your home loan options, it’s best to consult with a mortgage advisor in Singapore .

Q: What is the maximum loan tenure for a private property in Singapore?

The maximum bank loan tenure for a private property in Singapore is capped at 35 years or until the youngest borrower reaches the age of 65, whichever is shorter. This ensures that the loan is fully repaid before retirement age.

Q: How much CPF can I use for condo monthly instalments?

You can use your CPF Ordinary Account (OA) savings to pay for your condo monthly instalments, but there are limits. You can use your OA savings to cover the down payment, and subsequently, for monthly repayments, subject to the prevailing Loan-to-Value (LTV) limit. It's essential to maintain a minimum cash down payment as stipulated by MAS regulations.

Q: Can I buy private property with CPF?

Yes, you can use your CPF OA savings towards buying a private property. You can use it for the down payment, stamp duties, legal fees, and even for monthly mortgage repayments. However, there are restrictions on the amount of CPF you can use, based on factors like the purchase price, LTV limit, and your age.

Q: What is the minimum mortgage period?

While there's no minimum mortgage period mandated by law, lenders typically offer home loans with a minimum tenure of five years. However, you can choose a shorter loan tenure if you prefer to repay your loan more quickly.

Understanding How Private Property Bank Loans Work in Singapore

Buying a private property in Singapore is a significant investment, and securing the right housing loan is crucial. Here's a breakdown of the key elements involved in private property home loans:

Option Fee

When you decide on a property, you'll typically pay an option fee to the seller to reserve it. This fee is usually around 1% of the purchase price and is non-refundable. It gives you exclusive rights to purchase the property within a specified option period, usually around 14 days. During this time, you can conduct due diligence, secure financing, and finalise your decision.

Down Payment

The down payment is the portion of the purchase price you pay upfront. For a private property in Singapore, the minimum down payment is typically 25% of the purchase price. At least 5% of the purchase price must be paid in cash, while the remaining 20% can be paid using a combination of cash and your CPF Ordinary Account (OA) savings. The balance amount for the property will be financed through a bank loan.

Bridging Loan

A bridging loan is a short-term loan that helps you bridge the financial gap between buying a new property and selling your existing one. It provides funds to cover the down payment and initial costs of your new property before you receive proceeds from the sale of your current property. This can be helpful if you need to move into your new home before your old one is sold.

Lock-in Period

A lock-in period is a specific duration during which you cannot refinance or reprice your housing loan with another lender without incurring a penalty. Lock-in periods typically range from one to three years. It's essential to consider the lock-in period when choosing a home loan package for your private property, as it can affect your flexibility to switch to a more favourable loan in the future.

Interest Rate

Private property home loan interest rates can be fixed or variable (floating).

Fixed Interest Rates: These provide stability and predictability as your monthly repayments remain the same throughout the fixed rate period.
Variable Interest Rates: These fluctuate based on market benchmarks like the Singapore Interbank Offered Rate (SIBOR) or the Singapore Overnight Rate Average (SORA). While variable rates can be lower than fixed rates initially, they can also rise, increasing your monthly repayments.

Legal Fees, BSD and ABSD

Legal Fees: You'll need to engage a lawyer to handle the legal aspects of the property purchase. Legal fees typically range from 0.8% to 1.5% of the purchase price.
Buyer's Stamp Duty (BSD): This is a tax payable on the purchase of any property in Singapore. The BSD amount varies based on the purchase price of the property.
Additional Buyer's Stamp Duty (ABSD): Singapore citizens may be liable for ABSD if they are purchasing their second or subsequent property. Foreigners and entities are also subject to ABSD.

Eligibility for a Private Property Housing Loan in Singapore

Before you start your property search, it's important to understand the eligibility criteria for a private property home loan. Lenders assess various factors to determine your loan eligibility and the amount you can borrow. Here's an overview of the key requirements:

Minimum Age

You must be at least 21 years old to apply for a private property home loan in Singapore. This is because you need to be of legal age to enter into a legally binding loan agreement.

Credit Score

Your credit score plays a crucial role in your bank loan application for your private property. Lenders use your credit score to assess your creditworthiness and determine the interest rate you'll be offered. A higher credit score generally leads to more favourable loan terms and lower interest rates. You can obtain a free copy of your credit report from the Credit Bureau Singapore to check your score and review your credit history.

Loan-to-Value (LTV) Limits

The LTV limit refers to the maximum percentage of the property value that you can borrow. This limit varies depending on whether it's your first, second, or subsequent property purchase.

1st Property: The LTV limit for your first property is 75%. This means you need to make a down payment of at least 25% of the purchase price.
2nd Property: The LTV limit for your second property is 45%. This requires a larger down payment of at least 55%.
3rd and Subsequent Properties: The LTV limit for third and subsequent properties is further reduced to 35%, requiring a down payment of at least 65%.

These LTV limits are set by the Monetary Authority of Singapore (MAS) to promote financial prudence and ensure borrowers don't overextend themselves.

Income Requirement

Lenders assess your income to ensure you have the financial capacity to repay the bank loan for your private property. They will typically consider your gross monthly income, including your base salary, bonuses, commissions, and other regular income sources.

Total Debt Servicing Ratio (TDSR)

The TDSR is a framework implemented by MAS to ensure borrowers do not take on excessive debt. It limits the amount you can spend on monthly debt repayments to 60% of your gross monthly income. This includes your mortgage repayments, car loans, personal loans, and credit card bills. Lenders use the TDSR to assess your overall debt obligations and ensure you can comfortably manage your loan repayments.

Fixed Rate vs. Floating Rate Home Loans: Which is Right for You?

Choosing between a fixed rate and a floating rate home loan is a crucial decision. Both options have their own advantages and disadvantages, and the best choice for you will depend on your individual circumstances, risk tolerance, and financial goals.

What is a fixed rate home loan?

A fixed rate home loan offers an interest rate that remains constant for a specific period, typically one to five years. This provides stability and predictability, as your monthly repayments will stay the same throughout the fixed rate period, regardless of market fluctuations.

How does a fixed rate home loan work?

When you opt for a fixed rate housing loan for your private property, you "lock in" an interest rate for the agreed-upon duration. This protects you from potential interest rate hikes during that period. However, if interest rates fall, you won't benefit from lower repayments. After the fixed rate period ends, your loan will typically revert to a floating rate.

When to choose a fixed interest rate home loan?

Peace of mind: If you value stability and predictability in your monthly repayments, a fixed rate loan can provide peace of mind, knowing your repayments won't increase even if market interest rates rise.
Rising interest rate environment: If you anticipate interest rates to increase in the future, a fixed rate loan allows you to lock in a lower rate and protect yourself from potential increases.
Tight budget: If you have a tight budget and need certainty in your monthly expenses, a fixed rate loan can help you plan your finances effectively.

When to choose a floating interest rate home loan?

Potentially lower interest rates: Floating rates can be lower than fixed rates, especially in a declining interest rate environment. This can lead to lower monthly repayments.
Flexibility: Floating rate loans often offer more flexibility, such as allowing for partial prepayments without penalty.
Shorter loan tenure: If you plan to repay your loan quickly, a floating rate loan might be a suitable option as you'll have less time to be affected by potential interest rate increases.

What is a floating rate home loan?

A floating rate home loan, also known as a variable rate loan, has an interest rate that fluctuates based on a benchmark interest rate, such as the Singapore Overnight Rate Average (SORA). This means your monthly repayments to the bank for your private property can go up or down over time.

How does a floating rate home loan work?

The interest rate on a floating rate loan is typically pegged to SORA plus a spread (a fixed percentage determined by the lender). As SORA fluctuates, your interest rate and monthly repayments will adjust accordingly.