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    mortgage-terms

    Applying for home loans to purchase a property? You’ll be given a thick stack of paperwork with an overwhelming amount of technical terminology. Even when your loans officer explains all the terms of your mortgage, chances are that you’ll still be confused by the end of it.

    You want to know clearly what you’re getting yourself into, especially if you’re committing to it for the next 30 years. In this home loan/mortgage glossary, you’ll get an easy-to-understand guide on all the jargon used for home loans. Breeze through it with us as we take you through the world of mortgage terms:

    1. Approval-in-Principle (AIP)
    2. Bankruptcy Search
    3. CPF Housing Withdrawal Limit
    4. Credit Report
    5. Default
    6. Fixed/Floating Interest Rates
    7. Fixed Deposit Home Rates (FHR)
    8. HDB Housing Loan Interest Rate
    9. Joint Tenancy Ownership (JTO)
    10. Legal Requisitions
    11. Loan Quantum
    12. Loan Tenure
    13. Loan-to-Value Limit (LTV)
    14. Lock-in Period
    15. Maturity Date
    16. Mortgage Servicing Ratio (MSR)
    17. Option to Purchase (OTP)
    18. Property Tax
    19. Singapore Interbank Offered Rate (SIBOR)
    20. Stamp Duty
    21. Total Debt Servicing Ratio (TDSR)

     

    1. Approval-in-Principle (AIP)

    This is the bank’s quote and soft approval on the prospective home loan that you can get. It’s not an official approval though. Don’t be too quick to assume that you’ve got the entire amount, as it may not be the actual amount you’ll get in the home loan. 

    2. Bankruptcy Search

    It’s standard procedure to ensure that there are no bankruptcy or legal proceedings filed against you. If you're bankrupt, you’ll be very limited in your actions with your assets and loans. Basically, you don’t want to be bankrupt.

    (Read also: What Happens to Your HDB Flat After Divorce / Bankruptcy?)

    3. CPF Housing Withdrawal Limit

    The CPF Housing Withdrawal Limit is split into 2 types – Valuation Limit (VL) and Withdrawal Limit (WL).

    • Valuation Limit (VL) – VL is capped at the lower amount of the actual valuation of the property and the selling price of the property. You can use your CPF Ordinary Account funds to either pay for the entire property or cover the monthly loan instalments.
    • Withdrawal Limit (WL) – This refers to the maximum amount you can withdraw from your CPF to finance the property. The latest WL is capped at 120% of VL. 

    4. Credit Report

    Your credit report determines whether you’re trustworthy enough to be awarded a loan. It’s based on your past credit history -- i.e. your punctuality and ability to repay any credit borrowed (loans, credit card expenses, etc.). Be sure to pay off any overdue debts. 

    5. Default

    If you’re late in your loan repayments or are unable to pay, banks can recall your loan and annul it. If it’s a mortgage loan, you risk losing your collateral as it will be used to repay your loan.

    6. Fixed/Floating Interest Rates

    Banks will offer you two types of interest rates. The first of these are fixed interest rates. These fixed interest rates remain constant regardless of market conditions. The fixed rates among the major banks range from 1.89% to 2.98% (HDB) and 1.89% to 2.73% (Private Property). 

    The other one you’ll see are floating interest rates, which fluctuate according to the market. A booming market can lower the interest rates payable. The floating rates among the major banks range from 2.04% to 2.88% (HDB) and 1.98% to 2.63% (Private Property).

    7. Fixed Deposit Home Rates (FHR)

    FHR is commonly found with a number attached. In case you’re wondering, the number refers to the number of months the FHR is averaged across. For instance, FHR18 refers to the average FHR across an 18-month period. Compared to the SIBOR, Fixed Deposit Home Rates have zero spread charges and often offer a lower rate.

    8. HDB Housing Loan Interest Rate

    This is the annual interest charged for your HDB housing loan. The current HDB housing loan interest rate is 2.6% (2018) and pegged to your CPF Ordinary Account interest rates (+0.1%).

    (Read also: HDB Loan vs Bank Loan - 3 Keys to Help You Decide)

    9. Joint Tenancy Ownership (JTO)

    JTO is when you co-own a property with another person or multiple parties. That person can be a family member (above 35 years old) or your spouse. In the event of the death of your family member/spouse, their portion will be transferred to you.

    10. Legal Requisitions

    These are searches conducted by the relevant authorities to check for any issues that may impede the purchase or sale. At Bluenest, we provide referral services to trusted legal firms that can resolve your legal woes. Contact us for more information.

    11. Loan Quantum

    Loan Quantum is the amount you’d like to borrow to finance the purchase of a property. The approved loan quantum will be affected by your regular income (via monthly bank/CPF statements), CPF contributions, credit standing, and the remaining lease on your property.

    12. Loan Tenure

    Loan tenure is the period you have to fully repay your loans. The maximum loan tenures are capped at 30 years for HDB and 35 years for non-HDB properties. Generally, you can reasonably take 25 years to pay off your loan. 

    13. Loan-to-Value (LTV) Limit

    The LTV limit is the maximum you can borrow to finance your home purchase. You can’t just take out a loan for the entire purchase price; you’ve got to finance the initial portion with cash/CPF.  For more on the LTV limit, you may learn more about its workings in this article.

    14. Lock-in Period

    The lock-in period is the minimum time that you should not fully repay your loan by.  This helps banks to secure the interest income collected over the decided period. If you fully repay your loans during the lock-in period, the bank will impose an early redemption charge to reclaim their revenue loss.

    15. Maturity Date

    This is the date by which you’ll need to repay the entire loan plus all interest and fees.

    16. Mortgage Servicing Ratio (MSR)

    Applicable only when buying an HDB flat or EC, MSR is the percentage of your monthly income that can be used to finance your mortgage repayments. Unlike TDSR, it doesn’t include any other liabilities you may hold. MSR is currently capped at 30%. 

    17. Option to Purchase (OTP)

    Similar to a reservation, the OTP is your right to decide whether or not you want to purchase the property. You’ll typically have 21 days to exercise the option for an HDB flat and 14 days for a private property.

    With HDB transactions, sellers and buyers must use the HDB-prescribed OTP form. Be sure to print only one copy as each form has a unique serial number attached. If you print more than one copy, it will be taken as multiple applications.

    (Read also: So You’ve Found a Buyer for Your Property. Now What?)

    18. Property Tax

    Like all things in Singapore, our properties are taxable too. The amount you’ll pay is based on the Annual Value of the property + your applicable tax rate. Read more on how to calculate your property taxes.

    19. Singapore Interbank Offered Rate (SIBOR)

    SIBOR is the interest rate for banks in Singapore to borrow from each other.

    20. Stamp Duty

    Stamp duty is the tax for the purchase and sale of your property. It’s more commonly known as the Additional Buyer’s Stamp Duty (ABSD) & Seller’s Stamp Duty (SSD). You have to pay the stamp duty within 14 days from the date of your contract signing in Singapore or 30 days if signed overseas. If you’re late in paying, there’s a heavy penalty.

    21. Total Debt Servicing Ratio (TDSR)

    TDSR is a measure that the Monetary Authority of Singapore (MAS) put in place to make sure you can repay your loans. The ratio computes your current monthly debt against your monthly income, and is capped at 60% of your monthly income. For more on TDSR, you can refer to our article here.

     

    Looking for a mortgage specialist to navigate through all these complicated processes? Bluenest offers a team of specialists with the experience and tools to assist you in making the right decision for your mortgages. Contact us now to get your free consultation today. 

     

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