When buying property in Singapore, using a home loan is a very common and necessary financing method. In the complex and tedious process of securing a home loan, it’s essential to break down and understand each concept one by one to avoid pitfalls or unnecessary trouble.
Table of Contents
Elements of a Mortgage Calculator
A mortgage calculator can easily calculate the monthly installments, interest rates, and repayment period for a home loan in Singapore. The entire interface is very intuitive and easy to use.
The required fields include loan amount, loan tenure, and loan interest rate. By simply selecting the calculation target and filling in the required fields, you can determine your monthly installment.
The calculated monthly installment consists of two parts: repayment of the principal and the interest.
Some mortgage calculators may also use the following terms:
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- Down Payment: The initial payment made towards the total loan amount.
- Principal Repayment: The repayment of the total principal loan amount. This is distinct from interest payments; typically, interest is paid before the principal.
- Annual Interest: Determines how much interest you need to pay. Usually, banks or lenders offer two types of rates—fixed and floating.
- Loan Tenure: The time required to fully repay the borrowed amount to the lender.
- Property Tax: A tax levied on homeowners by the government. The estimated amount payable is included in the monthly repayments over the loan tenure.
- Property Insurance: Insurance against risks such as fire, storms, etc., suffered by the homeowner. Lenders often include this cost in your monthly repayment.
- Mortgage Insurance: Provides partial protection and compensation to the lender in the event of a final loan default.
- Total Monthly Repayment: The estimated total monthly payment, including interest, principal repayment, and insurance.
- Monthly Net Income: Your monthly net income is the amount you receive each month after taxes and various payroll deductions.
- Loan Balance: The total amount owed during the life of the home loan, representing the sum of the remaining principal to be repaid.
- Cumulative Interest: The total amount of interest paid over the life of the home loan.
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How a Mortgage Calculator Works
In Singapore, the monthly installment (i.e., the principal + interest paid to the bank each month) is the same every month. This is often referred to as the “equal installment” method in other regions.
The method for calculating home loan interest is the “reducing-balance method.” The interest you pay each month decreases as the remaining principal balance decreases.
This might still sound confusing, right? Let’s do a simple demonstration using a mortgage calculator.
Suppose you take a loan of S$500,000 for a tenure of 30 years at an interest rate of 4%. Inputting these figures into a mortgage calculator gives a monthly repayment of S$2,387.08. (Let’s not worry about how this number is derived for now; let’s first understand what it includes).
| Installment | Total Payment | Interest Paid | Principal Paid | Remaining Principal |
| 1 | 2387.08 | 1666.67 | 720.41 | 499279.59 |
| 2 | 2387.08 | 1664.27 | 722.81 | 498556.78 |
| 3 | 2387.08 | 1661.86 | 725.22 | 497831.56 |
| 4 | 2387.08 | 1659.44 | 727.64 | 497103.92 |
| 5 | 2387.08 | 1657.01 | 730.07 | 496373.86 |
| 6 | 2387.08 | 1654.58 | 732.5 | 495641.36 |
| 7 | 2387.08 | 1652.14 | 734.94 | 494906.42 |
| 8 | 2387.08 | 1649.69 | 737.39 | 494169.03 |
| 9 | 2387.08 | 1647.23 | 739.85 | 493429.19 |
| 10 | 2387.08 | 1644.76 | 742.32 | 492686.87 |
According to the repayment schedule, we can see that S$2,387.08 equals “Interest Paid” + “Principal Paid,” and that the “Remaining Principal” and “Interest Paid” are gradually decreasing, while the “Principal Paid” is gradually increasing.
The interest for each month is very easy to calculate. An annual interest rate of 4% divided by 12 months gives a monthly rate of 0.333%. The first month’s interest on a S$500,000 principal is S$1,666.67.
Starting from the second month, the interest figures might seem confusing. We just need to remember one thing: the S$720.41 of principal you paid off in the first month is no longer included in the calculation. The remaining principal is S$500,000 – S$720.41 = S$499,279.59. The monthly interest rate is still 0.333%. So, the interest for the second month = S$499,279.59 X 0.333% = S$1664.27.
Monthly repayment S$2,387.08 – Interest S$1664.27 = S$722.81. We can see this amount corresponds to the principal to be paid in the second month.
The interest for the third month = Remaining Principal S$498,556.78 X 0.333% = S$1661.86. The same logic applies to each subsequent month.
Because we are continuously repaying the principal, the remaining principal keeps decreasing, and thus the interest portion of the monthly payment also keeps decreasing. We often hear the phrase: “In the beginning of a mortgage, you’re mostly paying interest; later on, you’re paying off the principal.” This is because the interest is always calculated based on the remaining principal.
For most people, understanding these concepts is sufficient. Of course, if you are a math enthusiast, we have a formula for those interested in verifying this repayment schedule.
| Monthly Repayment = Loan Principal × [Monthly Interest Rate × (1 + Monthly Interest Rate)^Number of Repayment Months] ÷ [(1 + Monthly Interest Rate)^Number of Repayment Months – 1]
Monthly Interest Payable = Loan Principal × Monthly Interest Rate × [(1 + Monthly Interest Rate)^Number of Repayment Months – (1 + Monthly Interest Rate)^Repayment Month Number – 1] ÷ [(1 + Monthly Interest Rate)^Number of Repayment Months – 1] Monthly Principal Payable = Loan Principal × Monthly Interest Rate × (1 + Monthly Interest Rate)^Repayment Month Number – 1 ÷ [(1 + Monthly Interest Rate)^Number of Repayment Months – 1] Total Interest Paid = Number of Repayment Months × Monthly Repayment Amount – Loan Principal |
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