Which Bank Housing Loan Is Best For You?

Written by 1AP Credit on November 24, 2022

Owning a home in Singapore is a satisfactory accomplishment anyone would look forward to. However, it is an expensive venture that comes with a huge price tag and needs a steady cashflow.

Fortunately, you can finance your home purchase by taking a bank housing loan.

Which bank housing loan is best? Well, there are several options to choose from.

Our guide will help you choose the best bank housing loan. We will discuss fixed and floating housing loan rates to ensure you choose the best option for your lifestyle.

How To Get A Bank Home Loan

Follow the process below to get a bank housing loan.

Compare The Best Home Loans

Different banks offer different home loans. Also, their terms, fees, tenure, and interest rates vary significantly. Consider these factors before looking for a bank home loan in Singapore is essential.

Speak To A Mortgage Specialist

After doing some research on the best mortgage rates in Singapore, you should consult a mortgage loan specialist to determine if you’re eligible for a home loan.

The specialist can help you decide whether to take a bank loan or a HDB loan. He or she will also narrow down banks with the best home loan rates in Singapore and show you how to compare home loans. 

Apply For Your Home Loan

Gather all necessary documents the bank may request and present them to the bank. Fill up the application form and submit it either online or in person. 

Depending on the bank, it may take at least a week to review your application.

Types Of Home Loans

There are several types of home loans, as listed below.

Fixed Home Loans

This type of home loan involves you taking a home loan from that bank that is fixed over a certain period such as one to five years.

Depending on the loan tenure, this loan attracts a 1% interest or more. Regardless of the interest rate fluctuation, you’ll pay the requisite monthly rate for the stated period due to the fixed nature of the home loan.

Note that some financial institutions may impose penalties upon late payments of the monthly installment amounts.

Floating Home Loans

These are loans whose interest rates fluctuate depending on the prevailing market conditions and interest conditions. This means that your monthly repayments may increase or decrease depending on changes in the market interest rate.

Your monthly repayments will be lower when the market rates drop. Likewise, your monthly repayments will be higher when the market rates increase.

Most banks usually inform you at least 30 days before the change in monthly repayments is effected. This allows you to refinance your loan or make advance arrangements.

Home Loans For HDB And Private Properties

Home Loans For Private Property

  • Private properties still under construction 

If your property is still being built, it is best to take a loan without a lock-in period. This will enable you to refinance later at a lower interest rate.

 

  • Completed or resale private properties

If your property is completed or a resale unit, you can get a housing loan in Singapore. You can opt for floating or fixed loan rates. However, you can’t take a HDB loan for private property.

Home Loan for HDB

Singaporeans can take an HDB housing loan if they buy a HDB property. However, your income should be below the maximum household income threshold to qualify for this loan. Also, you should not own a private or commercial property.

If you take a HDB housing loan, you’ll pay a 2.6% interest. However, this interest rate may change if the interest rate for your CPF Ordinary Account (OA) changes.

HDB Loan Vs Bank Loan

Before opting for either, you should determine which one works best for you. However, before you decide on the best option, you should factor in your risk profile and financial capability.

Take a HDB loan if you don’t intend to take financial risks. Why?

This is because a HDB housing loan has a fixed interest rate of 2.6%. You can also pay the 20% downpayment using your CPF OA or cash.

However, you can take a bank loan if you’re ready for financial risks.

However, note that you will need the financial discipline to take a bank mortgage loan in Singapore.

This is because you’ll need to refinance your mortgage now and then to get the best interest rate. It would help immensely if you have a good credit score to qualify for a bank home loan.

The table below provides a comparison between a HDB and bank housing loan in Singapore.

 HDB LoanBank Loan
Interest RateFixed at 2.6%1.55-1.85%, increases after two to three years
Loan-To-Value (LTV) Limit80% as of 30 Sep 202275%
Downpayment20% in CPF or cash20% in CPF or cash,
5% in cash
Repayment AmountsConsistentVaries
Early RepaymentNo penalty1.5% penalty
Late Repayment7.5% late repayment fee per year$50 late repayment fee per repayment

Fixed Home Loan Rates Vs Floating Home Loan Rates

Knowing how each works will help you make a more informed choice.

Fixed Interest Rates

A fixed home loan rate allows you to pay the same monthly interest rate over your scheduled repayment period. You’ll pay equal monthly installments spread out over the lock-in period.

It is easier to manage your finances if you opt for fixed home loan rates.

However, when the lock-in period expires, the interest rate may increase or change to that of a floating interest rate.

Therefore, arranging with your bank to refinance your home loan at the end of the lock-in period is essential.

Floating Rates

Floating home loan rates basically mean that the interest rate fluctuates depending on the prevailing market conditions.

They depend on the Singapore Overnight Rate Average (SORA), Fixed Deposit Home Rate (FHR), and Board Rate, which changes according to the index.

The Board rates are under the control of the individual bank, which determines what rates to charge its board loans depending on market conditions. The fixed deposit rate is influenced by the fixed deposit rate of individual banks. They do not change frequently.

SORA is the volume-weighted average borrowing rate in Singapore’s unsecured overnight interbank cash market. It has been administered by the Monetary Authority of Singapore (MAS) since 2005.

SORA provides a daily reference rate for banks to price their overnight unsecured loans to one another.

You shouldn’t worry much about the changing interest rates of the floating loan rates. Your bank will notify you one month prior, allowing you to refinance your loan.

Differences Between Fixed And Floating Home Loan Rates

  • Fixed interest rates are suitable for those with a low-risk appetite as compared to floating loan rates.
  • Fixed home loan rates are not volatile as they are fixed. This is unlike floating loan rates, which are affected by market fluctuations.
  • Fixed home loan rates usually have higher interest rates than floating loan rates.
  • Fixed loan rates are not pegged to the market until the expiry of the lock-in period while floating loan rates are pegged to the market.

How To Choose The Best Home Mortgage Loan

Consider these factors carefully before making your choice.

Type Of Home Loan

Decide whether you’ll take a fixed or floating interest rate for your loan. You can opt for a HDB loan instead of a bank loan if you want to buy a HDB flat.

It has a fixed interest rate and only requires a 20% downpayment requirement as compared to 25% for most bank loans. However, it has a higher interest rate than bank loans.

Interest Rates

When you accumulate the interest you pay for a loan, you’ll realise that the interest amount is not as negligible as you thought. Therefore, choose a loan with a low interest rate to save some cash.

Banks have lower spreads and tend to offer promotional rates at the beginning of the repayment period. However, they gradually increase these rates later on. 

Lock-In Period

Most banks have a lock-in period of five years. Throughout this period, the bank may charge you a penalty on the outstanding loan amount if you opt for prepayments or cancellation.

So if your property has yet to be built, you should take a home loan without a lock-in period.

Which Bank Has The Best Floating Home Loan?

The banks that offer the best floating home loans* are shown below.

 

  • DBS Board Rate. DBS has two options. You can opt to pay $2,268 monthly installments for a three-year lock-in period and 2.6% interest for the first year. You can also pay $2,294 monthly installments for a two-year lock-in period and 2.7% interest for the first year.
  • DBS 3M SORA. You will pay $2,393 monthly installments for a two-year lock-in period and 3.09% interest for the first year.
  • OCBC 3M SORA. You’ll pay $2,328 monthly installments for a two-year lock-in period and 2.84% interest for the first year.
  • OCBC 3M SORA. You will pay $2,341 monthly installments for a two-year lock-in period and 2.89% interest for the first year.

*Information correct at time of publication

Which Bank Housing Loan Is Best? 

Bank home loans have helped countless Singaporeans to buy a home. But there is no easy answer to the question of which bank housing loan is best as it depends on your finances, risk appetite and preferences.

In general, choose floating bank loans if you’re good at loan refinancing. Otherwise, opt for a fixed home loan to save yourself the hassle and stress.

Individuals with little to no finance knowledge or less-than-ideal finances can start with some expert advice.

Contact licensed money lender 1AP Capital now or apply for a loan with us. We offer easy, affordable loans that help you start your home ownership journey with less stress.

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