Home Loan Guide Mortgage Singapore

For many individuals and families in Singapore, owning a home is a significant milestone. As property prices continue to rise, securing a housing loan becomes essential for many prospective homeowners. In this article, we will provide you with a comprehensive guide to housing loans in Singapore, covering key aspects such as eligibility criteria, loan types, interest rates and other important considerations.

(For HDB buyers) HDB Housing Loan or Bank Loan? 

Whether you choose an HDB housing loan or a bank loan depends on your financial capabilities and risk profile:

i. HDB Housing Loan: HDB offers a fixed-rate loan, currently at 2.6% which is pegged at 0.10% above the prevailing CPF Ordinary Account (OA) interest rate. It is suitable for individuals seeking lower risk and stable monthly payments. However, it comes with certain limitations and eligibility criteria.

ii. Bank Loan: Bank loans offer more options and flexibility, including fixed and floating rates. If you are comfortable with some financial risks, have the discipline to review and refinance periodically, and meet the eligibility criteria, a bank loan may be a viable option.

Evaluate your financial capacity, risk tolerance, and the pros and cons of each option to make an informed decision. Now, lets begin with the steps to getting your housing loan!

Step 1. Calculating Your Maximum Loan Amount:

Before you begin the loan application process, it’s essential to determine your maximum loan amount. Banks in Singapore use two main ratios to assess your borrowing capacity:

i. Total Debt Servicing Ratio (TDSR): 

The TDSR is a calculation that determines the percentage of your gross monthly income that can be allocated towards servicing all your debts, including the housing loan. The TDSR threshold for property loans is set at a maximum of 55% of the borrower’s monthly income– meaning your total monthly debt obligations, including the new housing loan, should not exceed 55% of your income.

ii. Mortgage Servicing Ratio (MSR):

The MSR calculates the percentage of your gross monthly income that can be used to service your housing loan installments. The MSR threshold is set at 30% of your income. In other words, a maximum of 30% of your gross monthly income can be used for your monthly housing loan repayment. 

*Do note that the MSR applies only to housing loans for a HDB flat, or an executive condominium (EC) where the minimum occupation period (MOP) of the EC has not expired.

To ensure that you’re not taking up too much debt, a good rule of thumb is to keep this ratio within 25% to 30% of your gross monthly income instead

By understanding these ratios and evaluating your financial situation, you can estimate the maximum loan amount you can borrow from the bank.

Step 2. Obtain Your In-Principle Approval (IPA) or HDB Flat Eligibility (HFE) Letter:

After assessing your financial capacity, the next step is to obtain an In-Principle Approval (IPA) from the bank or the HDB Flat Eligibility (HFE) letter from HDB.

  • The IPA is a written documentation issued by the bank that states and documents the maximum amount of housing loan you can take to purchase your property.
  • An HFE letter is an in-principle indication that you qualify for a concessionary housing loan from HDB, based on the information submitted at the point of application. Your HFE will also indicate the maximum loan amount you can take, monthly instalments, and repayment period.

You will need to provide relevant documents such as your income statements, identification documents, employment details, and property information.

  • To obtain the IPA: Approach your mortgage banker and submit the relevant documents. The bank will evaluate your financial profile and provide you with the IPA, which outlines the loan amount you are eligible for.
  • To obtain the HFE letter: Applications are made online using HDB’s e-service and logging in using your SingPass. Required supporting documents are also to be uploaded using the online service. Your submission will be processed within 14 days of receiving the full set of documents, and you can check your HFE letter application status by logging into the HDB website and clicking My Flat -> Application Status -> HFE.

Bluenest partners with financial institutions and we can assist if you require an IPA. Just call us at 3138-2554 or contact us here.

Step 3. House Hunting!

Based on the in-principle approval from your bank or HFE Letter from HDB, you will know how much you are eligible to borrow. Nevertheless, you may wish to think carefully about your financial situation before making an offer.

Landed House Viewing: 8 Things To Look Out For | Sevens Group

Step 4. Applying for the Housing Loan/ Submit Resale Application:

Once you have obtained the IPA/ HFE Letter, you can proceed with paying the Option to Purchase (OTP):

  • Upon receiving the IPA, homebuyers have up to 30 days to pay the Option to Purchase (OTP) before the IPA expires. The OTP is a legal document that grants you the right to purchase the property within a specified period. Thereafter, the OTP is valid for 21 days for home buyers to make the relevant down payment and obtain approval for the preferred bank loan to take effect.
  • The HFE letter is valid for 6 months from the date of issue. If your HFE letter is expiring within 30 calendar days, you may apply for a fresh one if you are planning to buy a flat. If you are getting a bank loan, do request for Letter of Offer to confirm the housing loan. You can proceed to exercise the OTP, submit resale flat application online and lastly, attend the completion appointment.

Another key consideration when choosing your housing loan options is the interest Rates

Selecting the best housing loan interest rates is a critical decision when financing your dream home. With numerous banks and loan packages available, it’s important to consider various factors to make an informed choice. Below are key considerations when choosing the best housing loan interest rates for your needs.

1. Should I get a Fixed Interest Rate or Floating Interest Rate?
One of the primary decisions to make is whether to opt for a fixed interest rate or a floating interest rate:

i. Fixed Interest Rate: With a fixed interest rate, the rate remains unchanged throughout a specific period, typically ranging from two to five years. This offers stability and predictability in monthly mortgage payments, shielding you from market fluctuations.

ii. Floating Interest Rate: A floating interest rate, also known as a variable interest rate, can fluctuate based on market conditions. Floating rate housing loan is usually pegged to the Singapore Overnight Rate Average (SORA) or a Fixed Deposit Based Rate (FDR). Floating rates offer the potential for lower interest rates during periods of market decline but come with the risk of increased rates when the market rises.

Consider the following when choosing between these 2 options

  • Is it crucial for you to have the assurance of consistent monthly payments? If so, a fixed-rate loan could be a more appropriate choice as it eliminates any unexpected surprises.
  • What is your risk tolerance & financial stability to maintain the monthly housing loan payment?
  • What is the market outlook? Consider the possibility of interest rates decreasing within the next 1 to 2 years, borrowers may prefer opting for a shorter lock-in period for their housing loan.

You can find out the latest mortgage rates from portals like Propertyguru

2. Lock-In Period:

The lock-in period refers to a specific timeframe during which you are obligated to maintain the loan with the same bank or face penalties for refinancing or early repayment. When assessing loan packages, pay attention to the lock-in period:

i. Longer Lock-In Period: Loans with longer lock-in periods, typically three to five years, may offer more favorable interest rates or other benefits. However, they limit your flexibility to switch lenders or refinance during that period.

ii. Shorter Lock-In Period: Loans with shorter lock-in periods, such as one to two years, provide greater flexibility but may come with slightly higher interest rates or fewer benefits.

Evaluate your long-term plans, such as potential property sales or refinancing, and choose a lock-in period that aligns with your goals.

3. Redemption Waiver and Conversion Options:

Certain loan packages offer additional features that can be advantageous:

i. Redemption Waiver: Some banks may waive or reduce the redemption penalty if you sell your property during the lock-in period. This flexibility can be valuable if you foresee the possibility of selling your property within the lock-in period.

ii. Conversion Options: Look for loan packages that provide free conversion options within or at the end of the lock-in period. This allows you to switch between fixed and floating rates or adjust the loan tenure without incurring additional costs.

Consider these features if you value flexibility and foresee the need to sell or adjust your loan terms during the lock-in period.

Choosing the best home loan interest rates requires careful consideration of fixed versus floating rates, the lock-in period, redemption waiver, and conversion options. Additionally, deciding between an HDB housing loan and a bank loan depends on your financial capabilities and risk appetite. Take the time to assess your needs, seek professional advice, and compare loan packages from various banks to secure the best home loan interest rates that align with your long-term financial goals!


**New cooling measure with effect from 30th Sep 2022:

  • There will be an increase of 0.5% point in the interest rate floor used to calculate the Total Debt Servicing Ratio (TDSR) and the mortgage servicing ratio (MSR).
  • An interest rate floor of 3% has been implemented for determining the eligible loan amount for loans granted by HDB.

Click here to read more about this cooling measure and how it will affect your next purchase.

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