Choosing a home loan scheme is not an easy task, especially with so many options available in Singapore, it’s better to consult a Mortgage specialist as it can save you lots of bucks.
Have you just recently purchased a property in Singapore and you are still looking for the best home loan in Singapore? Well, we have good news for you that we have already checked and reviewed the most affordable bank loans as of Feb 2019 in Singapore and it is based on different types of properties – HDB BTO flats, private property and resale flats.
The one factor that will impact your home loan package the most is whether your property is: (a) under construction (b) completed
As buying under contraction property is more common in Singapore, we’ll cover the best home loans in Singapore for BTOs and BUC (uncompleted private property) first.
We will also take a look at some of the things you need to consider when getting a home loan for each property type, as there are different regulations and details to consider based on what you are buying.
If a young couple applies for BTO, they normally go for an HDB loan as it doesn’t require a cash down payment. However, it also comes with various eligibility conditions and there’s that 2.6% interest rate to deal with.
You used to be able to find much better interest rates (well below 2%) with a bank loan, but this is no longer the case. As you can see, most banks are now offering 2% or more for HDB BTOs, with the exception of DBS although there’s a minimum amount of $500,000 for that preferential interest rate.
Unfortunately, there’s an element of risk as banks typically only offer floating rate packages for uncompleted properties. That’s bad news for those who would like the certainty of a fixed rate.
If you do qualify for an HDB loan, you’ll have to decide whether this risk is worth taking on for the relatively small savings. It’s possible to start with the HDB loan and refinance with a bank later on if rates improve.
As for which home loan package is best out of the lot, we would suggest Citibank, StanChart or HSBC’s SIBOR-linked packages, even though the rates are a little higher. Reason? Because SIBOR is a transparent, inter-bank rate and you can check the rate any time. It’s also said to be more stable.
If you’re financing a private property that’s still under construction, you obviously don’t qualify for an HDB loan, so you’ll need to choose a floating rate package from one of the private banks.
Luckily, the home loan packages for BUC are more competitive than that of BTOs, with the market rate being 1.95% currently. In this way less than 2% rates are pegged to internal bank rates rather than SIBOR, so the same caveats apply.
If you can pay more for more visibility on your interest rates, the SIBOR-linked packages are pretty good right now, because banks are charging low spreads (that extra “+ X%” tacked on to SIBOR) at the moment.
Watch out, though, for rates that climb up year after year. (For more on why this is bad, read the next section.) To avoid this, go with StanChart’s or HSBC’s packages, which remain stable for at least 2 or 3 years.
How do you choose the best home loan for BTO/BUC?
When comparing the best home loan packages from different banks, there are 3 things to consider: when is the TOP/CSC of your property, what the monthly installment of the loan is, and whether there is a lock-in period.
When is the TOP/CSC expected?
TOP stands for Temporary Occupation Permit, which marks the earliest the property can be occupied. For HDB BTO flats, the TOP date is typically 3 years down the road. Your home loan is fully disbursed on the TOP date.
CSC stands for the Certificate of Statutory Completion. This certificate is issued when properties are considered completed. For private property, CSC takes about 1 year from the TOP date. When CSC is obtained, the bank will disburse the remaining amount of the home loan to the developer.
It is therefore important to consider how long you need to wait before the TOP and CSC are issued.
Basically, you want to make sure you are not choosing a package that changes interest rates too quickly each year, as you would be using all the best years of the package on the small amounts disbursed to the developer prior to CSC.
So a package like UOB’s, where interest rates start out low but climb up in year 3, may be less appealing than that of DBS or Maybank, which maintain the same 1st year rate thereafter.
What is the monthly installment?
After considering the period before the CSC, your next priority is of course the monthly installment of the home loan package. Because these loans are all floating rate packages, your monthly installment will vary.
While the amount of the principal you repay is the same month to month, what causes the fluctuation is the interest rate. For example, the DBS home loan interest rate is based on FHR 8 + 1.275%.
The first half (FHR 8) is the “floating” portion of the home loan package. In this case, it means that your home loan interest rate for that month is determined by the 8-month average fixed deposit rate of that month. This change often and you’ll need to monitor the fluctuations. It has been as low as 0.2% and as high as 1.5% in the past couple of years, and it can change for no rhyme or reason.
The second half (+ 1.45%) is known as the “spread” and represents the bank’s “profit”. In this case, it is 1.45% and doesn’t change throughout the year. The “spread” typically increases significantly after 2 to 3 years. Ideally, you want them to be low for as long as possible.
Is there a lock-in period?
Nowadays, for buildings under construction, banks mostly don’t enforce a lock-in period. However, there are usually penalties – i.e. the cancellation fee – for trying to switch home loans while the building is still under construction.
So, try to go for something you’re fine with committing to… at least until the building is completed.
The monthly installments for a floating rate is usually based on either SIBOR, or an internal rate set by the bank In general, SIBOR is more volatile, but on the positive side it’s visible to anyone, whereas with a bank rate there’s always the chance that the bank will raise it at random.
Another thing to pay attention to is the spread: The “+ 0.5%” part added to the end of the benchmark rate. One trick banks like to use is to make this really low in the first year, then slowly but surely increase it every year. So even if the benchmark remains stable, you’ll end up paying more year after year.
Most floating home loan packages for completed properties have a 2-year lock-in period. So make your decision wisely, since there is a heavy penalty if you change your mind during the lock-in period. (Some banks do offer “no lock-in” home loan packages, but they are understandably more expensive.)
If you currently own a home already, you might want to consider refinancing your home loan. This allows you to switch over to a new home loan package if you are out of your lock-in period and might potentially help to save quite a bit of money.
Either way, it’s important to make sure you take a home loan package that suits your needs, and not just jump at the cheapest rate available.
Mortgage Specialists can easily assist you through the entire home loan application process and advise you on what would work best for you. You can simply head over to Mortgage specialists in Singapore and let our team do the rest.