Interest rates and inflation remain high in Singapore. Taking cues from the US Federal reserve, Benchmark rates in Singapore have gone up. The Singapore Overnight Rate Average (SORA) benchmark stands at 3.51% early this February 2023, significantly affecting SORA-pegged floating rates in Singapore.
Meanwhile, Singapore’s inflation averaged 4.1% for 2022. If this trend continues, borrowers will expect another uptrend in mortgage interest rates this year. Still, banks are doing their best to help homebuyers by reviewing their loan packages regularly and offering special mortgage rates or more extended fixed-interest-rate periods.
So, if you are considering buying a home property this year, read on to compare HDB and bank loans and find some of the best banks to consider.
See Also: CPF vs Home Loan and HELOC vs Home Equity Loan
Fixed Home Loan Rates Vs. Floating Home Loan Rates
Key Differences: At a Glance
|
Fixed-Rate |
Floating-Rate |
|
|---|---|---|
|
Definition |
Interest rate that remains unchanged for the specified period, or a lock-in period usually ranging from 1 to 5 years. | A variable interest rate on a loan fluctuates based on market conditions and is often tied to a benchmark index like SORA. |
|
Stability |
Provides certainty and predictability for borrowers since the interest rate remains constant over the specified period. | Interest rates float up or down over the loan period and may cause uncertainty to borrowers. |
|
Risk |
Borrowers are protected from sudden interest rate increases during the specified period but miss out on potential savings if rates decrease. | Borrowers benefit from potential savings if interest rates decrease but face the risk of higher rates if they increase. |
| Flexibility | Limited flexibility to switch to a different loan type during the fixed-rate period. |
Borrowers can switch to a fixed-rate loan if rates rise or to a variable-rate loan if rates decrease. |
| Prepayment Penalty | Fixed-rate loans may come with prepayment penalties if the borrower wants to pay off the loan earlier than the specified period. |
Floating-rate loans typically do not have prepayment penalties. |
| Market conditions | The prevailing interest rates influence fixed-loan rates at the time of application. |
Market conditions affect floating rates during the loan period. |
Let’s discuss further the differences between fixed and floating rates:
1. Stability
With fixed-rate home loans, your monthly mortgage payments will remain the same throughout an agreed period. This stability allows homebuyers to plan and budget more effectively.
On the other hand, floating-interest home loans are less stable as they may either rise or fall depending on market conditions. Moreover, financial institutions may add a margin on top of the SORA benchmark rate depending on the borrower’s creditworthiness.
2. Risk
Fixed rate home loans are protected from fluctuations during the lock-in period. However, you may miss out on the opportunity to save when interest rates fall during the fixed rate period.
Floating-rate home loans may be riskier as interest rates fluctuate over time. You must be ready to take this risk and ensure that you can handle the monthly repayments diligently.
3. Flexibility
Fixed-rate home loans have limited flexibility, so you can’t switch to another loan type during the lock-in period.
With floating rates, you may pay your loans faster by keeping your repayments the same even with lower rates. You also have the advantage of switching to a fixed loan rate when the rates increase.
4. Pre-payment Penalty
Fixed-rate home loan options also come with early-repayment penalties if you decide to pay off your loan before the term ends. This condition may limit you from paying your loans faster.
Floating-rate home loan options do not have pre-payment penalties and are ideal if you plan to repay your loan anytime.
5. Market Conditions
Interest rates are significantly dependent on market conditions. However, with fixed interest rates, the loan interest rate remains unchanged throughout the lock-in period.
On the other hand, floating rate home loans, may start with a low interest rate and rise higher depending on market conditions. Thus, it may be more expensive than fixed-rate loans if the increase continue for an extended period.
Best Home Loans in Singapore
Buying a home come may come with higher interest rates in todays Singapore property market. Still, bank loans are an ideal option if you plan to purchase any type of property. Not only for the wide range of loan products you’ll find but also for the security and reliability it offers.
So, here are some the best bank loan offers. Let’s start with the fixed interest rate options:
Best Fixed-Interest-Rate Home Loans for HDB Flats
| Lock-in Period |
Fixed Interest Rate (% p.a.) |
|
|---|---|---|
|
Citibank |
2 years | 3.65% |
|
DBS |
2 to 5 years | 4.25% |
|
HSBC |
2 to 3 years |
4.25% |
| OCBC | 1 to 2 years |
4.30% |
| UOB | 2 years |
4.50% |
Among the featured banks, Citibank offers the lowest fixed rate of 3.65% p.a. for a lock-in period of two years. DBS and HSBC come in next at 4.25%. However, with DBS, you may choose up to a five-year lock-in period, while for HSBC, the maximum lock-in period is only three years.
Best Floating-Interest-Rate Home Loans for HDB Flats
| Lock-in Period |
Interest Rate (% p.a.) – for the first year |
|
|---|---|---|
|
Citibank 3M SORA |
2 years | 2.67%+0.65% p.a. |
|
DBS CPF Home Rate |
3 years | 2.50%+0.10% p.a. |
|
DBS 3M SORA |
2 years | 2.67%+1.00% p.a. |
|
DBS Bridging Loan |
No lock-in period |
4.25% p.a. |
| Maybank 3M SORA | 1 year |
2.67%+0.80% p.a. |
| OCBC 3M SORA | 1 year |
2.67%+0.98% p.a. |
| UOB 3M SORA | 2 years |
2.67%+0.70% p.a |
The bank with the lowest first-year floating interest rate is DBS CPF Home Rate which comes at only 2.50%+0.10% p.a.
Most of the floating rate loans are based on the SORA benchmark. Thus, keep updated with the latest SORA rates, which are published on the MAS website.
Best Fixed-Interest-Rate Home Loans for Private Properties
| Lock-in Period |
Fixed Interest Rate (% p.a.) |
|
|---|---|---|
|
Citibank |
2 years | 3.65% |
|
DBS |
2 to 5 years | 4.25% |
|
HSBC |
2 to 3 years |
4.25% |
| OCBC | 1 to 2 years |
4.30% |
| UOB | 2 years |
4.50% |
The above-featured banks also provide the best loan offers for private property purchases. Again, interest-wise, Citibank is a smart option as it comes with the lowest fixed interest rate of 3.65% for a lock-in period of two years. The short lock-in period also allows you to move on to a cheaper or better loan option sooner, depending on your preferences.
Best Floating-Interest-Rate Home Loans for Private Properties
|
Lock-in Period |
Interest Rate (% p.a.) – for the first year |
|
|---|---|---|
|
Citibank 3M SORA |
2 years | 2.67%+0.65% p.a. |
|
DBS CPF Home Rate |
3 years | 2.50%+0.10% p.a. |
|
DBS 3M SORA |
2 years | 2.67%+1.00% p.a. |
|
DBS Bridging Loan |
No lock-in period |
4.25% p.a. |
| Maybank 3M SORA | 1 year |
2.67%+0.80% p.a. |
| OCBC 3M SORA | 1 year |
2.67%+0.98% p.a. |
| UOB 3M SORA | 2 years |
2.67%+0.70% p.a |
We’ve also picked the same floating-interest-rate home loans as best for private properties. For the lowest rate, and if you plan to use your CPF for your monthly repayment, choose the DBS CPF home rate. Otherwise, if you have plans of refinancing anytime, you can opt for the DBS Bridging loan, which has no lock-in period.
Best Home Loans for Jumbo Flats
| Lock-in Period |
First-year Interest Rate (% p.a.) |
|
|---|---|---|
|
DBS Board |
3 years | 2.60% |
|
Hong Leong Finance Board |
2 years | 3.70% |
| Standard Chartered Banks
3M SORA |
2 years |
3.73% |
| Hong Leong Finance Fixed | 2 years |
4.25% |
Jumbo flats are more expensive than regular HDB flats due to their size. The great thing is many banks will allow you to borrow at least S$1M to finance these types of properties. The featured banks offer the best home loan packages for jumbo flat purchases, with DBS offering an interest rate similar to HDB’s 2.60%.
Best Home Loans for Buildings Under Construction (BUCs)
|
Lock-in Period |
First-year Interest Rate (% p.a.) |
|
|---|---|---|
|
DBS 3M SORA |
None | 3.88% |
|
Maybank’s 3M SORA |
None |
3.93% |
| Maybank’s 1M SORA | None |
4.35% |
New homes are more costly than HDB resale flats and will also require higher mortgage costs. Aside from having the lowest interest rates in the market, the featured banks also offer no lock-in period, which may work to your best advantage. Switching to a better option or refinancing once the construction is over becomes easier without lock-in periods..
Best Home Mortgage Loan Refinancing Rates 2023
A refinancing mortgage becomes essential when looking for a lower interest rate to lower your monthly mortgage installments. It is also ideal for securing a loan with shorter terms to pay your loan faster. Either way, check the risks and advantages before making a refinancing decision.
If a mortgage loan suits your current situation, here are some options:
| Lock-in Period |
First-year Interest Rate (% p.a.) |
|
|---|---|---|
|
DBS Board |
3 years | 2.60% |
|
Hong Leong Finance Board |
2 years | 3.70% |
| Standard Chartered Banks
3M SORA |
2 years |
3.73% |
| Hong Leong Finance Fixed | 2 years |
4.25% |
How to Choose the Best Home Loan
Choosing a loan is a crucial decision and a long-term commitment. It is not the same for all borrowers, as there are varying needs to be met. Thus, you need to choose one that fits your needs, budget, and personal preferences, as it could affect your financial goals.
Some crucial concerns are the interest rates, the monthly payments, price ranges, and qualifying for it.
So, here’s how you can compare loans and choose the best fit for you.
1. Qualifying for a Loan
Another factor to consider in finding a loan is qualifying. HDB has its qualification criteria, and banks have their own set. If you are applying from banks, they will check that you have a good credit score and income capacity to ensure that you can repay back the loan.
Another important requirement is the Total Debt Servicing Ratio (TDSR) which ensures that your monthly debt obligation, including other loans and credit card debts, do not exceed 60% of your income.
2. Loan Budget
Before you start looking for a loan, you’ve pretty much determined the property you want to buy. Thus, you may also have set an amount of money you can afford to spend on it. This factor immediately narrows your search to find a loan amount that fits your budget.
You must also check the loan-to-value (LTV) ratio, the maximum limit on how much you can borrow.
Most banks offer a 75% LTV, subject to requirements. The remaining 25% is the amount you should pay for the down payment. This initial down payment can be paid using cash, CPF OA savings, or a combination.
Age can also be a restricting factor in your LTV and is capped at 55% if:
- the borrower’s age exceeds 65, or the tenure exceeds 30 years (for private properties
- the borrower’s age exceeds 65, or the tenure exceeds 25 years (for HDB flats)
3. Type of Loan
When shopping around, another crucial factor to check out is the type of home loan. Your options will depend on your property type and status.
Here’s a quick view of the type of loans that may be available for you:
|
Property Type |
Status | HDB Loan |
Bank Loan |
|
|---|---|---|---|---|
| Fixed rate |
Floating Rate |
|||
|
HDB BTO |
Completed | Yes | Yes | Yes |
|
HDB BTO |
Under Construction | Yes | No | Yes |
|
HDB flat |
Resale | Yes | Yes |
Yes |
| Private Property | Completed | No | Yes |
Yes |
| Private Property | Under Construction | No | No |
Yes |
As you can see, banks do not provide fixed-rate loans to properties under construction, as the value of the house has yet to be discovered.
4. Interest Rates
Interest rates vary from one financial institutions to another. And if you’ve decided to apply for a bank loan, you will also choose between a fixed interest rate and a floating interest rate loan, or a combination of both.
Fixed-rate loans are a secure option as you are protected from the market’s volatility during the lock-in period. Floating rates may start cheaper but are subject to changing market trends. Thus, you must understand how the market will trend in the next few years.
You can speed up the process of comparing interest rates and save time by using the services of a loan comparison site online.
5. Loan Tenure
You must also check limits on how long you can repay the entire loan. This tenure may depend on your age and the property type you plan to purchase. The maximum loan tenure for an HDB flat is 30 years, while it is capped at 35 years for private properties.
6. Loan Conditions and Features
Comparing loan conditions and added features are also necessary and depend on your specific needs. Thus, you may look for conditions on early repayment if you plan to refinance within the lock-in period. It is also worth checking added values like free fire insurance to save on costs.
If you are still finding it difficult to decide, mortgage specialists may help you find the best loan product.
HDB Loan Vs. Bank Loan
HDB flats represent 80% of the total home ownership in Singapore. If you plan to purchase an HDB flat, you can choose between an HDB loan and a bank loan. But what are the things to consider when choosing between the two? Find out as we explain key differences and when an HDB loan fits you more than a bank loan and vice versa.
At a Glance: Differences Between an HDB and a Bank Loan
| HDB Loan |
Bank Loan |
|
|
Lock-in Period |
❎ | ✅ |
|
Interest Rates |
Current rate is 2.6% (fixed)
Pegged at 0.1% above OA interest rate |
Fluctuates based on market conditions and benchmark rates |
|
Downpayment |
20% of the purchase price
(Can be paid in cash or using CPF OA savings) |
25% of the purchase price
(At least 5% must be paid in cash) |
|
Monthly Repayments |
Consistent due to the more stable interest rates |
May change after the lock-in period |
| LTV | 80% |
75% |
| Early Repayment | No penalty |
With pre-payment fee during the lock-in period |
In essence, there are several differences between an HDB and a bank loan to consider. Borrowers should understand these factors when weighing their options to find the best fit.
1. Lock-in Period
With HDB loans, borrowers can enjoy a no-lock-in period allowing them to repay their loans earlier than the agreed term. Meanwhile, banks impose a lock-in period averaging two to three years and a pre-payment fee if you choose to pre-pay before the lock-in period ends.
2. Interest Rates
HDBs interest rate is currently pegged at 0.1% above OA interest rates. HDB rates remain at 2.6% for the whole loan tenure. Compared to banks, HDB has lower interest rates than banks, but you may find some that offer below or similar to this rate.
3. Downpayment
HDB only requires borrowers to pay a 10% down payment based on the purchase price, while banks require a larger percentage of 25%. However, if you plan to get an HDB loan, you must use the remaining funds in your CPF OA, but you can leave S$20,000 for future needs.
Meanwhile, if you opt for a bank loan, you must pay at least 5% in cash, which can be a significant amount depending on the purchase price. You can pay the remaining 20% in cash or via your CPF OA fund.
4. Loan-to-Value (LTV)
HDB has a higher LTV of 80% compared to banks who offer 75% or 55%, depending on age and loan tenure restrictions.
5. Monthly Repayments
For several years, the interest rate for HDB remained the same at 2.6%. As such, you can expect a more consistent monthly repayment, allowing you to budget more efficiently.
Bank loans, on the other hand, significantly depend on market conditions. Thus, your monthly repayments may change after two or three years, depending on your loan’s lock-in period.
Who Should Get an HDB Loan?
HDB loans are ideal for borrowers looking for a more stable interest rate over the long term. While HDB’s rate may be higher than other banks, the stability of having a fixed rate for the whole loan duration provides better security to many borrowers.
It is also ideal for borrowers looking for a lower down payment fee and a higher LTV amount.
Who Should Get a Bank Loan?
Bank loans are ideal for borrowers buying an HDB property but do not qualify for an HDB loan. It is also ideal for borrowers looking for a more flexible option. Since banks offer both fixed-rate and floating-rate loans, you can switch between options or opt for a refinancing mortgage loan when you want to.
Closing
Choosing between a fixed-rate and a floating-rate home loan and between an HDB or a bank loan is a huge task. But at the end of the day, the best home loan will depend on your financial health and personal preferences. Ensure you’ve weighed all your options and reviewed the loan product well before signing any loan agreement.
Key Takeaways
- Not all home loans are the same; choose one that fits your unique needs as a homebuyer.
- Compared to HDB, banks offer a more flexible option by offering fixed-rate and floating-rate options.
- Monthly repayments may be more stable with a fixed-rate home loan option.
- If you have plans to refinance your loan in a few years, a floating-rate home loan could be an ideal option.
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