Buying a house is one of the biggest commitments for several Singaporeans. Before you start looking for a property, make sure you know how much you can afford, how much you can pay, and which loan to go for. If you are eligible for a bigger loan, try not to take it unless you have the resources to repay it. Keeping all this in mind, let’s have a look at the types of home loan packages you’ll find in the market:
These kinds of loans offer a fixed interest rate for 1 to 5 years, irrespective of the market conditions. After this lock-in period, the rate changes to a floating interest rate. Fixed rate home loans offer certainty and you know the amount you need to pay every month. So, it helps you plan a little better. For instance, if you take a Citibank Home Saver loan of S$1 million to buy a private property for a duration of 20 years, the lock-in period will be 2 years and you will have to pay a fixed interest rate of 2.18% p.a. Hence, you have to pay S$5,145 every month.
Singapore Interbank Borrowing Offer Rate or SIBOR is a borrowing rate that allows you to know the exact interbank market rate and the cost of borrowing. This rate is readily available on ABS Co. These rates come in tenors of 1,3,6, and 12 months. Most banks in the country offer either a 1-month tenor or 3-month tenor. A longer tenor would mean higher interest rates. Moreover, the bank will also charge a certain interest on top of this prevailing SIBOR Rate. For instance, if you are an HSBC Premier customer and borrow S$800,000, your interest rate will be SIBOR + 0.35% p.a. for the first 3 years and change to SIBOR + 0.70% p.a. thereafter.
Swap Offer Rate or SOR is a US dollar funding mechanism, where you can swap the SGD funds for US dollar funds at a particular cost for a tenor of 1,3, or 6 months. Unlike SIBOR, the SOR has an overnight interest rate, which is 1.35386%. Since the funding is in USD, the uncertainty of the FX market rate can affect the SOR rate. Like SIBOR, the bank will charge an interest on top of the SOR rate. For example, 3M SOR + 1%. According to THE STRAITS TIMES, SOR-pegged home loans have been taken off the market due to the instability of interest rates.
A board rate-pegged home loan offers interest rates based on the bank’s internal interest rate mechanism. Unlike SIBOR, this kind of interest rate does not provide transparency on how the bank reached this figure. Due to this reason, most banks are trying to adopt a common board rate for convenience. For instance, Maybank offers Private Property Home Loans, where the board rate is 4.50% p.a.
Several banks offer home loans that are a combination of a variable rate of interest and fixed rate plan. Let’s say you borrow S$1 million. A part of it will be pegged to a fixed rate of interest and the rest of it will be linked to a flexible SIBOR/Board rate. Such home loans provide double benefits – consistency and flexibility. UOB, for instance, offers a home loan with such benefits.
The Housing and Development Board (HDB) offers housing loans at a concessionary interest rate. To get this loan, you need to fulfil certain eligibility criteria like not owning 2 or more home loans from HDB previously and not having a gross monthly income of more than S$12,000 for families. Banks like CIMB also offer HDB Loans, where you can choose from either a fixed rate package or SIBOR-pegged package and repay your loan over 30 years.
The interest rates of these loans are linked with the bank’s fixed deposit interest rate. Hence, the interest rates do not fluctuate and are higher than SIBOR. The bank will charge a certain interest on top the FD interest rate. For example, POSB offers HDB loans, where the interest rate is linked to an 8-month SGD fixed deposit interest rate of DBS. This is called FHR8. Hence, if you go for a fixed rate package, the rate will be 2.18% p.a. for the first 2 years and FHR8 + 1.68% p.a. thereafter. The current FHR8 is 0.500% p.a.
With these loans, you can purchase a property in London, let’s say, and get the financing either in SGD or GBP. You can borrow up to 80% of the property value and get attractive interest rates. With Maybank’s Overseas Property Loan, you can buy a property in Australia, which is completed or under construction and get the amount in SGD or AUD. You can borrow up to 70% for this property.
Now that you know the types of home loan packages, you should be able to select the right one for yourself. Always read the terms and conditions associated with home loans. This will help you know about all the additional charges. Also, banks run promotions on interest rates from time to time. Look out for these deals and make the most of them.