What You Need to Know Before Taking a Home Loan

It took several rounds, but the latest MAS measures (2018) finally made a dent in Singapore’s housing market. These changes also affected home loans, bringing the following restrictions:

  • Loan quantums for second and third time buyers were reduced to as low as 40% and 35%.
  • Loan tenures are capped at 30-35 years, which includes refinancing.
  • Additional Buyer Stamp Duties up to 20% (depending on residency) were introduced.

These measures led to a rise in interest rates as banks tried to compensate for a decline in the volume of home loans being taken.

So if you intend to take out a home loan, stay up-to-date with the latest government housing measures to see how your home buying plans might be affected.


Consider Choosing a Fixed-Rate Home Loan

In the past, fixed-rate loans weren’t favored by home buyers because they cost more than floating rates. But with interest rates rising because of the latest MAS measures, a fixed rate lasting 2 – 3 years means you’ll pay the same rate regardless of how much rates increase.

Fixed-rate home loans also have the advantage of remaining consistent each month, making it easier for you to budget if you’re paying with cash instead of CPF.


Loan Package Features You Want to Take Note Of

So if you’re looking for a home loan, be aware of these “enticing” loan offers:

  • Banks may offer interest offset loans, which use the interest on your existing bank account to reduce your home loan interest rate.
  • Banks may offer internal board rates, which are determined by the bank and not by transparent indexes like SIBOR.

Not all loan features are going to be relevant or effective, it depends on your scenario. Some may save you money, but they’ll only benefit you if you keep to certain criteria, such as maintaining large sums in your bank account. Most times, it is recommended to stick with “traditional” loan packages pegged to the SIBOR index.

Since the banks cannot control the SIBOR, all they have to compete with each other is the banks spread (margin) which they charge effective over the SIBOR or SOR. The lower the spread the better.

Do take note of how long the low spreads last for and whether they rise after the 3rd year. Refinancing is always an option, but you would have to choose from whats available in 2-3yrs time and it may not be as low as the current market rates.


Look into your current outstanding loans or balances on credit

The new TDSR regulations require all banks in Singapore to use more or less the same ratios when calculating how much of a loan you can take for your new property. The ratios have to take into account all currently declared debt obligations which include car loans, personal loans, business loans, credit card debt and also your previous credit history. Whatever you can pay off should be done before you apply to ensure that you can get the target amount you need to make the purchase.


Beware of shelling out for a downpayment before you know approximately how much you can be approved for by banks in Singapore. You can do this by applying for In Principle Approvals which will give you a good gauge as to what the banks need to see in terms of documentation as well as how much of a loan you can take at your present state of finances.