Content Summary
- The HDB Loan Eligibility (HLE) Letter and the Home Loan Fact Sheet contain your loan terms and show how interest rate hikes will affect your repayments.
- For bank loans, floating rates will take effect after the fixed-rate lock-in period ends (this varies depending on the loan package).
- Refinancing your home loan can help you save on interest.
- Making a partial pre-payment can help you reduce your monthly repayments and save on interest.
Table of Contents
What is a Mortgage Loan?
An HDB loan or a home loan is money borrowed from the HDB or a bank to help you buy a property. For HDB flat purchases, you can also get a housing loan from HDB at a concessionary interest rate, subject to HDB’s criteria.
When you get a home loan:
- Your property becomes the collateral for the loan
- The loan amount granted is based on the buyer’s eligibility
- After the down payment is made, the loan is disbursed to pay the seller for the remaining purchase price
- Interest is charged from the first disbursement
Who is Eligible for a Home Loan?
HDB and banks have their own criteria for who they will lend money to, including:
- Minimum monthly income
- Minimum and maximum age of the buyer
- Loan-to-Value (LTV) limit
- Residency status
- Meeting MAS’s mortgage rules and HDB/bank’s internal credit requirements
If you are self-employed or do not have a fixed income, you must prove your ability to make monthly repayments to qualify for a loan. Each lender will assess your loan eligibility based on their respective criteria.
Types of Home Loans
HDB only offers concessionary loans to HDB flat buyers, with an interest rate pegged at 0.1% above the current CPF Ordinary Account interest rate. This rate changes in tandem with the CPF interest rate.
When borrowing from a bank, there are mainly two types of home loans:
- Fixed-rate loan
- Floating or variable rate loan
Here’s a comparison of the two:
| Fixed-rate home loan | Floating or variable rate home loan |
| • The rate is fixed and remains the same for the first few years (promotional rate).
• This rate will not change even if market rates fall. • After the lock-in period, the interest rate will change. |
• The interest rate fluctuates and is usually pegged to a reference rate, such as the CPF Ordinary Account rate, Singapore Interbank Offered Rate (SIBOR), Swap Offer Rate (SOR), or a rate determined by the bank, such as the bank’s internal board rate.
• If the reference rate increases, the interest payable will increase, and vice versa. |
Reference rates can change at any time, depending on current market conditions. The bank must give you advance notice (usually 30 days) before changing the interest rate on your home loan.
To better understand the differences between various bank loan packages, clarify with the bank:
- How the reference rate is derived
- How often the interest rate is reset
- Under what circumstances the rate will change
- Whether the package has any special features and if these features can be removed or modified later
Note: Promotional rates are lower than the rates for the remaining portion of the loan. Be sure to find out how much your monthly repayment will increase after the promotional period ends.
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How Interest is Calculated
The common method for calculating interest is based on a monthly reducing principal (monthly rest).
Even a small increase in the interest rate can affect your monthly installment amount and the effective interest rate you will ultimately pay for the loan.
To illustrate, here are the monthly installments for a $800,000 loan over 30 years at different interest rates using the monthly rest method:
| Interest Rate | 1.24% | 1.42% | 1.61% |
| Effective Interest Rate (EIR) | 1.5% | 2.5% | 3.5% |
| Monthly Installment | $2,760 | $3,160 | $3,592 |
💡Helpful Tip
Even if you qualify for a larger loan amount or a longer tenure, you don’t have to accept it unless you are sure you have sufficient resources to fund it.
What You Can Do: Prepaying Your Mortgage
You can consider making a lump-sum prepayment on your home loan to reduce your monthly repayments and save on interest in the long run. However, be sure to check if doing so will incur any penalties first.
Example: Partial pre-payment
If you have an outstanding home loan of $800,000 with a 25-year tenure and you want to make a partial prepayment:
| Prepayment amount (% of outstanding housing loan) | $40,000 (5%) | $80,000 (10%) |
| Monthly repayment amount | $4,440 | $4,210 |
| Total interest saved over the remaining loan tenure | $30,150 | $60,300 |
Note: Assumes the home loan interest rate rises to 5% per annum and remains constant for the remaining 25-year loan tenure. This data depends on the terms and conditions of your home loan—please consult your lender.
Understanding Your Home Loan
Check the HDB Loan Eligibility (HLE) Letter and the Home Loan Fact Sheet to learn more about the details of your loan.
HDB Loan Eligibility (HLE) Letter
To find out if you are eligible for an HDB loan and the maximum amount you can borrow, you need to apply for an HDB Loan Eligibility (HLE) Letter.
The HLE letter provides information on how much you can borrow, the monthly repayment amount, how much cash you need to have, and other terms and conditions to help you plan your home purchase properly.
💡Helpful Tip
There are eligibility criteria for HDB loans, such as an income ceiling. Please check if you meet the criteria.
Home Loan Fact Sheet
Before you apply for a home loan from a bank, the bank must provide you with a Home Loan Fact Sheet.
The fact sheet highlights how potential interest rate increases will affect your monthly installments and includes key points of the loan, such as:
- Loan amount and tenure
- Total repayment amount
- Lock-in period
- Interest rates and repayment schedule
- Explanation of interest rate changes
- Effective Interest Rate (EIR)
- Penalties
Ask your bank to walk you through the Home Loan Fact Sheet in detail to ensure you understand the financial commitment you are making when accepting the loan.
Refinancing and Repricing
“Refinancing” means switching your existing home loan to a new lender with a lower interest rate. Refinancing with your current bank is called “repricing” or “conversion.”
You should review your home loan regularly to see if you can save money by refinancing, especially after your lock-in period ends.
⚠️Note: HDB flat buyers are not allowed to use an HDB loan to refinance their existing bank loan.
Before Refinancing
Before refinancing, consider which option is more beneficial for you:
- Keep your current home loan package as is
- Switch to a different home loan package with the same bank
- Refinance your home loan package with another bank
Follow these steps to compare the various options:
1. Ask your current bank
Before consulting other banks, ask your current bank about repricing options. Check if your loan is still within the lock-in period. If so, there may be penalties.
Ask your bank the following questions:
- Are there any fees for terminating the current home loan package, such as penalties during the lock-in period, clawbacks, additional legal fees, or conversion fees?
- Can I switch my loan to a more attractively priced one? What are the fees involved?
- Does the new home loan package have a lock-in period? If so, how long is it and what are the associated fees?
- Can you tell me the benefits of a repricing package for me?
2. Compare loan packages
It’s a good idea to compare your current bank’s repricing loan with other refinancing packages to see if you should switch. You should compare:
- The new repayment schedule for various packages—check the interest payable.
- The advertised interest rate and the Effective Interest Rate (EIR) of the package.
If you change your loan package, your installment amount and interest rate may change. The bank must provide you with a Residential Property Loan Fact Sheet to clarify the main features of the home loan package. You can use this opportunity to ask about prepayment penalties, bundled products (like Mortgage Insurance Premium – MIP), and compare them with other loan packages to understand the differences.
3. Read the fine print
Before committing to a refinancing home loan package:
Read the terms and conditions and understand what the new package offers.
When you refinance your home loan, check the CPF Housing Withdrawal Limit applicable to you.
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What If You Can’t Afford Your Mortgage?
If you are unable to make your monthly repayments, contact your mortgagee (HDB or the bank) as soon as possible. HDB may be able to advise you on alternative packages, and the bank may help you restructure your loan.
Your home loan is secured by your property. In the event of a loan default, HDB or the bank becomes the first mortgagee. If you used CPF savings to pay the down payment or service the loan, the CPF Board becomes the second mortgagee of your property.
If you fail to repay your home loan when it is due, under the first mortgage, HDB or the bank has the right to sell your house and use the proceeds from the sale to repay the amount you owe them.
The CPF Board has the right to the remaining sale proceeds to recover the amount deducted from your CPF Ordinary Account.
💡Helpful Tip
If you use your CPF to service your mortgage installments, it is best to pay off the loan before you reach the age of 55 for CPF withdrawal, as CPF contributions decrease from age 50. Since your Ordinary Account contributions will be lower, you may have to use more cash to service the loan.
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