Buying private property in Singapore? Or buying a resale HDB flat in Singapore? Regardless of what property you’re getting, congratulations on making this very important decision! Your mind may be full of renovation plans and planning future house parties, but first you need to be aware of 3 financial responsibilities.
Before you choose your dream home in Singapore, make sure you understand the following:
- Getting a Home Loan in Singapore
- Affording your Downpayment
- Paying your Monthly Instalment
Even if you think you know all about these, it doesn’t hurt to have a refresher course. Don’t buy property in Singapore before reading this!
1. Getting a Home Loan in Singapore
Singapore property is super expensive! Unless you have super generous parents, who also live in Sentosa Cove, chances are you won’t have enough cash on hand to buy any property. Ya, not even a tiny shoebox unit in some ulu condo. That means you’ll need to get a loan.
If you’re buying an HDB flat, you’ll have the option of an HDB loan or a bank loan. This means that you can either borrow money from HDB directly to buy your flat, or you can borrow money from a bank. There are pros and cons to each choice and here is a quick summary:
| HDB Loan | Bank Loan | |
|---|---|---|
| Loan to Value (LTV) | Borrow up to 90% of purchase price | Borrow up to 75% of purchase price |
| Downpayment | 10% of purchase price, can be paid fully from CPF Ordinary Account | At least 25% of purchase price, 5% MUST be paid in cash, the remaining 20% in cash or from CPF Ordinary Account |
| Interest Rate | Currently 2.6% | On average 1.6%, but can rise in future |
| Loan Tenure | Up to 25 years | Up to 30 years (but longer tenures have to pay a higher downpayment) |
| Late Payment Charges | 7.5% per year | Around 9.25% per year, depending on the bank |
| Monthly Repayment Amount | Tends to stay the same, since HDB Loan interest rates have remained at 2.6% for years. | May fluctuate several times a year depending the type of home loan package you've taken |
| Lock-In Period | No lock-in period | Lock-in periods are typically 0-3 years. |
Want to know more? Read our HDB loan vs Bank loan article for in-depth details.
If you’re buying a condo in Singapore, or landed private property or buying an EC, you don’t have a choice – you can only go with a bank loan.
One way to help you decide between an HDB loan or bank loan is to see how much money you can afford upfront. This is called the downpayment.
2. Affording your Downpayment
The downpayment is the amount of money you have to come up with as soon as you sign the lease to your home, regardless of whether you’re buying a BTO HDB flat, a resale flat, or an unfinished condominium unit. If you don’t have enough money upfront, chances are you’ll need to find a cheaper property.
Here’s an illustration. Ms Aini is looking to buy a condo unit costing $800,000. Because it is private property, she can only get a bank loan, not an HDB loan. That means she needs to pay at least 25% of the purchase price as a downpayment.
| Purchase Price | $800,000 | |
|---|---|---|
| Downpayment (25%) | $200,000 | |
| Paid in Cash (At least 5%) | $40,000 | |
| Paid in cash or CPF (Remaining 20%) | $160,000 |
So, if Ms Aini wants to buy the condo unit, she needs to have at least $40,000 in cash, while the remaining amount of $160,000 needs to be paid in cash or from her CPF savings. If Ms Aini doesn’t have at least $40,000 in cash, too bad, she cannot buy the condo unit. If she does have the cash but does not have the remaining $160,000 in her CPF savings, too bad.
Of course, if she’s buying with her partner, they can pool their CPF savings so it’s easier to buy the condo unit. I’m just using Ms Aini alone as a simple example.
The downpayment is often the most important thing you should consider before buying a property in Singapore. The recent tightening of the Loan-to-Value limits means that Singaporeans must be even more careful in finding out what properties they can afford.
3. Paying your Home Loan Monthly Instalment
Just because you can afford the downpayment, doesn’t mean you should buy the house! You need to make sure that you can also afford the home loan monthly instalment amount. The good news is that a bigger downpayment often means a lower monthly repayment amount.
Here’s what we mean. Imagine you’re buying an HDB flat for $600,000. For simplicity’s sake, let’s assume you do not qualify for any CPF housing grants.
For HDB loans, the loan tenure is capped at 25 years, or until you are 65 years old, whichever is shorter. With a $600,000 purchase price, your downpayment is 10% or $60,000 and your HDB loan amount is 90 or $540,000. Assuming a fixed interest of 2.6%, you would need to pay about $2,450 a month for 25 years.
For bank loans, the loan tenure is capped at 25 years for HDB flats, and 30 years for private property, if you want to enjoy the lowest Loan-to-Value limit. Let’s say you take a bank loan for your $600,000 HDB flat. The downpayment is 25% or $150,000, and your bank loan amount is 75% or $450,000. Assuming an average interest of 2.0%, you would need to pay an average of $1,907 a month for 25 years.
But of course, these are just very simple illustrations to help explain what home loans, downpayment and monthly repayment amounts are when buying private property in Singapore or buying an HDB flat in Singapore.
If you want to find out more, contact our mortgage specialists at Mortgage Master! They’ll be able to assist you specifically regarding any questions you may have about buying property in Singapore.
