Home Loan Types

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There are various home loan packages in the market. Before you sign up for the package, you should use a mortgage calculator as a guide to how much your repayments will be.

HDB loan

HDB provides housing loans at concessionary interest rate to eligible HDB flat buyers. The HDB concessionary interest rate is pegged at 0.1% point above CPF Ordinary Account Interest Rate. It is revised quarterly in January, April, July and October each year, in line with the revision of CPF interest rate.

Pros:

  • The interest rate is stable. It has stayed consistent at 2.6% since 1999.
  • No charges for early repayment or partial repayment
  • Has comprehensive policies and measures to help restructure the loan
  • Maximum loan amount can be up to 90% of the purchase price

Cons:

  • Can have a higher interest rate than bank loans because CPF Ordinary Account Interest Rate has a floor rate of 2.5%
  • Must use all available savings in your CPF Ordinary Account

Fixed Rate Loan

This is the most common of all.  Fixed interest rate loan charges the same rate of interest throughout the duration of the loan tenure.  Sometimes, it could be fixed for the first 1 to 3 years only varies from bank to bank. This type of loan is usually for people who want to have a peace of mind and be sure of how much repayments exactly every month.  They do not have to worry about the fluctuating interest rates like SIBOR and SOR.

Pros:

  • Repayments do not rise if the benchmark rates like SIBOR/SOR rise
  • Offers peace of mind for borrowers concerned about rate rises
  • Allows more accurate budgeting

Cons:

  • Repayments stay high even if benchmark rates fall
  • Penalty for partial or full redemption during the lock in periods

Floating (Variable) Rate Loan

Floating rates imply that the interest rates are pegged to SIBOR (Singapore Interbank Offer Rate) or SOR (Singapore Swap Offer Rate) or the bank’s board rates. It fluctuates every month.  Consider this option if you are a savvy buyer/ investor as it provides a lot of flexibility in terms of repayment or switching of packages.

1. Singapore Interbank Offer Rate (SIBOR) Loan

Singapore Interbank Offer Rate (SIBOR) refers to the rate that financial institutions in Singapore lend / borrow unsecured funds to / from each other. Your loan can be based on the 3-month or 12-month SIBOR. If your loan is based on the 3-month SIBOR, your interest rate will be 3-month SIBOR plus a margin for the Bank and repriced every 3 months. This rate is transparent and published daily in The Business Times or you can search on major banks’ websites.  As the rates are fluctuating, so there are certain risks involve.  Consider this option if you are a savvy buyer/ investor as it provides a lot of flexibility in terms of repayment or switching of packages.

2. Swap Offer Rate (SOR)

Swap Offer Rate (SOR) is SIBOR plus lending costs incurred by the banks. It is as transparent as SIBOR that reflects market conditions. If your loan is based on the 3-month SOR, your interest rate will be 3-month SOR plus a margin for the Bank and repriced every 3 months. This rate is transparent and published daily in The Business Times.  As the rates are fluctuating, so there are certain risks involve.  Consider this option if you are a savvy buyer/ investor as it provides a lot of flexibility in terms of repayment or switching of packages.

Pros:

  • Repayments fall when the benchmark rates fall
  • Some packages have no penalty on partial or full redemption
  • Usually the lowest available rates

Cons:

  • Repayments rise when benchmark rates rise
  • Difficult to budget accurately
  • Repayment usually increase after the first few years

 

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