Home loans are some of life's biggest financial commitments, if not the biggest. A home loan is something you can't quite do without if you are thinking of buying your own property in Singapore. With a home ownership rate of 90.3%, Singapore is close to the top of the home ownership ladder. Thanks in part to the Housing Development Board (HDB), owning your own home isn't a pipe dream here, like it is in some other countries.
We at GET.com will run you through five basic things you need to know about home loans in Singapore. You will also find additional resources here in GET.com's Ultimate Guide to Home Loans in Singapore.
This is a big chunk of money that you pay as your part of the deal. For HDB loans, you will have to pay 10% of the cost of your new home.
This 10% down payment is based on either the purchase price (the price that you buy the property for), or the market valuation (the amount that the property is valued at), whichever is lower.
For bank loans the down payment is 20%, so you will need to come up with more money to get a private loan.
That means if the property you want to buy with an HDB loan costs $200,000, you will have to have $20,000 to make the down payment. The loan will cover the other $180,000. With a bank loan, you would need to pay $40,000 yourself, and the loan will cover the other $160,000.
The entire amount of money that you owe the bank for your home loan is called the principal. As you pay off your loan over the years, your principal will go down.
For example, if you borrow $180,000 to buy a flat then the principal of your loan will be $180,000 (plus interest). When you pay off $50,000 of that, your principal will go down to $130,000.
Interest is the only reason why a lender is interested in giving you a loan. This is money that you pay on top of the money you borrow.
In the simplest case, if you borrow $180,000 at an interest rate of 2% per year, you would pay $3600 interest per year.
Because bank loans take compound interest and loan payments into account, interest is actually a lot more complicated than this. As you make monthly payments, your principal will slowly go down, so the amount of interest you pay will also go down. At the same time, you will pay interest on the interest you owe, so the amount of money you spend on interest may go up year by year.
Banks (or HDB) usually calculate all of these things and spread the payments and interest over the full loan tenure to make it easier to understand what you will pay. Don't be shy about asking the home loan provider for the total amount you will pay in interest for the loan!
The interest rate for bank loans follow a market index (SIBOR). HDB loans have interest rates fixed at 0.1% above the prevailing CPF interest rate.
When you get a home loan, you will be able to choose how quickly you want to repay the loan. This time during which you pay back the home loan is called the loan tenure.
Depending on your income, you may choose to pay the loan off quickly (5 or 10 years), or slowly (up to 30 years for HDB loans). If you can afford to pay off your loan over a short tenure, you will pay a lot less interest on the loan. If you have to pay it off slowly over 20 or 30 years, you will pay more interest altogether.
Early repayment or partial repayment means paying off your debt faster by paying extra money, above your monthly repayments.
Let's say you got a home loan with a 30 year loan tenure because you couldn't afford to make high monthly payments with your income of $30,000 per year.
One day you win $300,000 in the lottery and decide you want to pay off your home right away, so you don't have to bother with loan repayments anymore.
An HDB loan will let you make a partial repayment (part of what you owe) or a full early repayment without having to pay penalties.
As for bank loans, each bank home loan package has its own terms and conditions; many will let you pay off your loan early (whether partially or fully) but only after a certain period time has passed. Be sure to abide by the terms of your package so that you do not pay any penalties.
Additional Resources For Singapore Home Loans: