Buying Property in Singapore: Loan Amounts & Interest Rates Explained

Whether you are a first-time homebuyer or a seasoned veteran in the property market, one of the most important questions on your mind when buying a house is definitely: How much can I borrow?

Calculating your loan amount when buying a property in Singapore is a process that requires a lot of knowledge and information. I have encountered some buyers who miscalculated their budget because they were unclear about their loan eligibility, and after viewing many properties, they had to give up on their dream home due to an insufficient budget. To avoid a situation where you are ‘flying blind and regretting it later,’ this article will provide some useful information about home loan amounts in Singapore.

When buying a home in Singapore, most people need a loan. Everyone hopes to minimize the down payment and maximize the loan amount to alleviate financial pressure in the initial stages of homeownership. The loan amount affects the initial cash outlay, including the down payment amount and the portion that must be paid in cash.

Therefore, when calculating your mortgage amount and loan tenure, you need to consider these factors:

• The type of property you are buying;
• The loan tenure;
• The borrower’s age upon full repayment of the loan;
• How many outstanding loans you currently have;
• Your ability to service the loan, etc.

In Singapore, the measure of how much you can borrow for a home loan is called the “Loan-to-Value Ratio” (LTV).

What is Loan-to-Value Ratio (LTV)?

Simply put, the LTV ratio is the percentage of your home loan against the total property price. For example, an LTV ratio of 75% means you can borrow up to 75% of the property’s value or price, whichever is lower.

If the price of the property is higher than its value, the difference is called Cash Over Value (COV).

Currently, the maximum LTV for an HDB concessionary loan has been reduced from 90% to 85%. The remaining 15% can be paid with cash, your CPF Ordinary Account (CPF OA), or a combination of both.

For a bank loan, the maximum LTV is 75%. The remaining 20% can be paid with cash or CPF OA, or a combination of both, and at least 5% must be paid in cash.

⚠️Please note: The LTV ratio does not differ based on the type of property you are buying (HDB flat or condominium) but depends on who you are getting the loan from (HDB or a bank). This means if you are buying an HDB flat (be it a Build-To-Order (BTO), Sale of Balance Flats (SBF), or a resale flat) but you want to finance it with a bank loan, your LTV limit is 75% (with a down payment of at least 5% in cash, and the remaining 20% paid with cash and/or CPF OA.)

How is LTV Calculated?

Let’s say you want to buy a resale 4-room HDB flat valued at S$500,000. However, the seller’s actual asking price is S$515,000. The S$15,000 difference is called the Cash Over Value (COV).

• With an HDB concessionary loan, you can borrow up to S$425,000 (85% of S$500,000). Up to S$75,000 (15% of S$500,000) can be paid with cash or your CPF OA, but the remaining amount (the S$15,000 COV) is not included in the loan at all. You must pay the COV in cash.
• With a bank loan, you can borrow up to S$375,000 (75% of S$500,000). You can then use up to S$100,000 (20% of S$500,000) from your CPF OA for the down payment, but the remaining S$40,000 (5% of S$500,000 + COV) must be paid in cash.

⚠️Please note: According to the Monetary Authority of Singapore (MAS), you cannot use a bank loan to pay for the down payment.

There’s No Guarantee You Can Get the Maximum Loan Limit

As mentioned above, the maximum LTV for an HDB loan is 85%, while for a bank loan it is 75%. However, HDB and the banks are not obliged to give you the maximum LTV. They can choose to lower the LTV in appropriate situations. For instance, it was recently reported that due to the impact of the COVID-19 pandemic, some banks have lowered the LTV for loan applicants working in heavily affected industries. Some banks also consider only 50% of variable income or even only the fixed salary when calculating loan eligibility.

This part is entirely at the discretion of the lender. Factors that may affect the loan amount include:

1. Outstanding home loans;
2. The remaining lease of the property being purchased;
3. The buyer’s age and loan tenure;
4. The location and condition of the property;
5. The buyer’s credit score;
6. The buyer’s income and debt situation;
7. A stress test to assess resilience to future risks.

1. Outstanding Home Loans

The LTV limits mentioned above apply to your first property (i.e., you have no other outstanding home loans). The LTV limit for a second home loan is 45% (of the remaining 55% down payment, half must be paid in cash, and the rest can be paid with cash or your CPF OA). The LTV limit for a third home loan is 35%.

⚠️Please note: The LTV ratios above only apply to loans with a tenure of 30 years or less. If the loan extends beyond the age limit of 65 or the tenure exceeds 30 years (25 years for HDB), the LTV may be even lower.

2. Remaining Lease of the Property

For properties with a remaining lease of only 36 to 40 years, the LTV limit is typically 60%. However, you can still use your CPF to pay for up to 15% of the property’s price or value (whichever is lower).

For properties with a remaining lease of 35 years or less, a home loan is generally not available. Additionally, you cannot use your CPF to pay for the down payment.

3. Your Age and Loan Tenure

If the loan tenure for a private property exceeds 30 years (or 25 years for an HDB flat), or if you will be over 65 years old when the loan is fully paid off, the LTV limit is 55%.

For example: If you apply for a 30-year loan at the age of 40 (meaning you will only pay it off at 70), the bank can only grant you a maximum loan of 55%.

4. Location and Condition of the Property

Properties in very poor locations or conditions may receive a significantly lower loan amount.

Properties in poor locations, that are dilapidated, or have significant defects (e.g., overseas properties, properties in unpopular locations, condominiums facing developer lawsuits due to defects) may also lead the lender to offer a lower LTV.

5. Your Credit Score

During the home loan application process, the lender will check your credit score through the Credit Bureau of Singapore. If you have a history of late or missed payments, you may be considered a credit risk.

To prevent this, be sure to make your loan payments on time—whether it’s for a home loan, credit card, car loan, personal loan, or others. Even a payment default from 10 years ago can affect your LTV.

6. Your Income and Debt Situation

To prevent people from over-borrowing or taking on mortgages beyond their means, the Monetary Authority of Singapore (MAS) has implemented the MSR and TDSR to limit borrowing. These two limits are checks on your monthly repayment ability. Therefore, when calculating the home loan amount we can obtain, we also need to calculate the MSR and TDSR.

The Mortgage Servicing Ratio (MSR) refers to the proportion of your gross monthly income used to repay your mortgage, with the current limit being 30%.

The Total Debt Servicing Ratio (TDSR) stipulates that only 55% of a borrower’s gross monthly income can be used to service all debts (including car loans, credit card debt, etc.).

The MSR applies only to the purchase of HDB flats and Executive Condominiums (ECs). If you are buying a private property, you only need to consider the TDSR.

7. Stress Test for Future Risks

In addition to meeting the MSR and TDSR requirements above, borrowers also need to undergo a stress test. This involves calculating the total loan amount using a much higher interest rate than the current rate (currently 3.5% is used).

This ensures that if interest rates rise in the future, the borrower will still be able to continue making payments. It is a protective measure against future risks.

Feeling overwhelmed by all these rules and regulations? Don’t worry, leave the professional work to the professionals. You can contact us for the most comprehensive service and advice tailored to your needs.

Official Sources & References

• Monetary Authority of Singapore (MAS) · New housing loans — LTV & TDSR rules
• CPF Board · Using your CPF to buy a home

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