A loan tenure is the duration of the loan or the amount of time you’ll have to repay your loan.
A short loan tenure covering a short period will ultimately see you pay less interest over the course of your loan. Conversely, signing up for a longer loan tenure will incur more interest, but help you out with lower monthly repayment costs and give you much more time to repay your loan in full.
From maximum loan tenure restrictions to important factors that affect loan tenures and other aspects of your loan, let’s review everything you need to know about loan tenure in Singapore.
What is a Loan Tenure?
Loan tenures, also known as loan duration, are simply the length of your loan. Depending on your unique preferences and financial needs, you can either opt for a shorter loan tenure (with a view to paying off your loan quickly with less interest) or go for a longer tenure (that offers greater flexibility by spreading your loan repayment burden over a longer period.)
How Does Loan Tenure Impact Borrowers?
The following table illustrates the key ways in which choosing a long or short loan tenure will impact your loan and financial commitment.
|Short Loan Tenure||
Monthly Repayment Costs
|Generally higher, as you’ll have less time to repay your loan||Generally lower, as you’ll be tied into making a monthly repayment for a longer period|
Total Interest Costs
|Less interest||More interest|
|Maximum Amount You Can Borrow||Usually higher||
|Leftover Cash for Other Purposes (e.g. Monthly Expenses)||Less, as your monthly repayment burden is higher||
More, as you’ll be enjoying lower a monthly instalment cost with your loan
There’s an important relationship between loan tenure, monthly repayment amount and the cost of borrowing prior to taking out a loan.
Both loan tenure options have their advantages and disadvantages. For example, borrowers who can afford a higher monthly repayment on their loan can benefit from paying significantly less interest, whereas those who can’t are able to reduce their payments by choosing a longer tenure.
Longer tenures offer lower monthly instalment costs, but will result in a higher interest obligation, and vice-versa for a shorter loan tenure. The following table based on a $2,000 loan with a 4% interest rate shows how this works:
6-Month Short Loan Tenure
12-Month Long Tenure
Monthly Repayment Amount
As a borrower, it’s your responsibility to balance interest, monthly expenses, and tenure. It’s also worth noting that, with home loans and mortgages, maximum restrictions apply to home loan tenures in Singapore. For private residential properties and non HDB properties, the maximum residency term is 30 years or until you reach age 65. For HDB flats, it’s 30.
Housing Loan Tenures: Which Should You Choose as a First-Time Buyer?
1. Short Tenure
- Best for those who want to pay the lowest amount of interest
- First-time buyers who want to pay the lowest amount of interest possible on their outstanding loan amount will inevitably be better off with a shorter tenure if the monthly payments are feasible.
2. Long tenure
- Best for those who want a lower monthly payment
- First-time buyers won’t always be debt free and usually need to save hard for their minimum downpayment on their first home. A long tenure with a lower monthly payment cost could be the perfect solution.
Ultimately, your unique financial needs and situation will always dictate which type of tenure is the best fit.
Maximum Loan Tenure Regulations for New Housing Loans
Maximum tenure restrictions apply when purchasing certain types of property in Singapore using home loans. Here’s what you need to know:
1. Private Residential Properties
- Have a maximum residency term of 30 years (or until age 65)
- Over-40s seeking a 75% LTV can only procure up to 25 years
- You can extend your tenure up until age 75 for up to 35 years
2. HDB Flats
- A HDB Flat will have a maximum loan tenure of 25 years (or until age 65)
- Advance residency longer than 25 years could see your maximum loan marked down
Important Factors That Affect Loan Tenure
Whenever you borrow from banks and financial institutions, there are important factors that will affect your loan application, as well as whether shorter or longer tenures are the best fit for you. Here are the most important ones to be aware of:
1. Borrower’s Age
Your age determines your eligibility for certain types of housing loans. What’s more, age and gross monthly income combined will impact the Loan to Value (LTV) ratio your bank or financial institution will be able to offer you, as well as your Total Debt Servicing Ratio (TDSR)
Generally speaking, it’s better to be younger when applying for a home loan. This applies whether you want to borrow as a single person or as joint borrowers with your partner or spouse.
2. Borrowers Gross Monthly Income
Your gross monthly income will inevitably affect the maximum amount any financial institution is willing to offer you on their housing loans or other financial products.
Whenever you submit a loan application, your financial institution will scrutinize both your monthly income and your credit history – both of which affect how much you’ll be allowed to borrow.
3. Borrowers Financial Commitment Each Month
Life in Singapore doesn’t come cheap. Almost everyone has financial commitments, and banks and financial institutions will want to know all about these before granting us any business loans, car loans or home loans.
Whether you owe money on outstanding housing loans, have credit card debt that you’re still paying off or simply have a lot of outgoings, monthly expenditure is as important as your monthly salary when applying for a loan. Banks will be looking out for non-payments and pre-existing loans, while you should be thinking about whether the loan you’re applying for is realistically affordable.
How to Choose the Best Loan Tenure for You
Choosing the right loan tenure to meet your needs is all about understanding how much of your monthly salary you can afford to set aside for monthly repayment costs. Here’s what you should do to determine whether a shorter or longer tenure is right for you:
1. Assess Your Financial Needs and Financial Commitment
A shorter loan tenure will result in significant interest rate savings for those who can shoulder a higher monthly repayment amount. But if the cost of other financial obligations is eating up most of your monthly salary, a longer loan tenure with more affordable monthly payments probably makes more sense.
2. Determine a Sensible Budget
Budgeting means everything when figuring out your finances. You should use a budget to determine your gross monthly income versus expenditure and see how much of your monthly income you’ll have left over to go toward your new loan obligations each month.
3. Consider the Cost of a Shorter Versus Longer Loan Tenure
A longer tenure will result in you paying more interest over the course of your loan, whereas borrowing for a short period will save you money. You should also consider other interest-related factors, such as whether your interest will compound with each Equated Monthly Instalment or “EMI” payment you make.
How to Calculate Equated Monthly Instalment (EMI)
EMI is a term used by banks to describe the amount of money you’ll pay them each month at a pre-agreed date as part of your new loan commitment. Your EMI will gradually pay off your loan amount plus any interest accumulated over the course of your loan.
Calculating your Equated Monthly Instalments or “EMI” is important for affordability purposes and is actually a lot easier than you might think. You can do so quickly and easily using the following formula:
E = P * r * (1 + r)n / (1 + r)n – 1
In the above, “E”, “P”, “R” and “N” represent:
- E = the EMI.
- P = the loan amount the borrower wants
- R = the interest rate
- N = the loan duration (usually in months)
In addition to EMI, it’s important to remember that processing fees and other charges are often added on by banks when you take out a loan. Typical bank processing fees can range from 1 to 3% of your loan principal. On top of this, loan insurance fees and early repayment fee costs should be considered.
Best Home Loans for HDB Flats in Singapore
Whether it’s your first time buying a property or you’re looking for another physical real state investment, it’s always helpful to look at the list of the banks offering the best home loans in the market. Here’s a list of fixed home loans for HDB flats:
|First Year Interest Rate||
|3.65% p.a||2 years|
|4.25% p.a||2 years|
|4.25% p.a||3 years|
|4.25% p.a||4 years|
|4.25% p.a||5 years|
Banks usually charge around 4% interest rate for the first year, one to five years for the lock-in period, 75% loan to value ratio, and the minimum down payment is at 5%, which you can pay in cash or with CPF.
Other Important Things To Know About Loan Tenures
1. Is a Short Loan Tenure Always Best?
In most cases, yes. Although, while shorter tenures attract less total interest, the high monthly payment cost involved won’t be suitable for borrowers who have a low monthly income and those who have multiple financial obligations.
2. Does Loan Tenure Impact Loan Amount?
The maximum amount you can borrow from a bank can potentially be reduced by up to 55% of your property’s purchase price if your loan tenure exceeds 25 years as a HDB Flat or 30 years for private properties.
3. What is Mortgage Servicing Ratio (MSR)?
Your MSR limits the amount you can borrow toward purchasing a residential property in Singapore. 30% can usually be allocated, but MSR may be more restrictive for first-time buyers.
4. What is Total Debt Servicing Ratio (TDSR)?
Your TDSR calculates how much of your monthly salary goes toward your entire loan obligations. According to Monetary Authority of Singapore, a borrower’s TDSR should be less than or equal to 55%.
5. What is Loan to Value (LTV)?
Loan to value or “LTV” refers to the loan amount your bank will let you borrow toward your property purchase. A maximum LTV of 75% is set with most banks in Singapore, but this can vary depending on your unique situation.
Final Thoughts: Pick the Right Loan Tenure and Loan Amount Very Carefully
Understanding the duration of the loan deeply will help you figure out how to plan out your finances while repaying your home loan. That way, you’ll avoid avoid sudden and unnecessary financial obligations.
When deciding whether a longer or shorter tenure is the right choice for you, don’t forget that:
- Loan tenures, also known as loan duration, are simply the length of your loan.
- You’ll pay less total interest with a short tenure but will need to cover a higher monthly payment cost with your loan.
- A longer tenure might incur more total interest, but you’ll get to enjoy a lower monthly payment cost and more flexibility.
- Purchasing different types of homes such as private properties, executive condominiums and HDB flat may affect the loan tenure your bank will offer you.
- Comparing different loan products offered by different banks is a great way to get the best possible deal on a loan tenure that’s right for you.
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