Find out about the types of home loans available and how interest is calculated, and learn about repayments and refinancing. Show
Key takeaways
What is a home loan?An HDB loan or home loan is money borrowed from HDB or the bank to help you buy your property. For HDB flats, you may also be able to tap on housing loans at a concessionary interest rate, subject to HDB's criteria. With a home loan:
Who is eligible for a home loan?HDB and the banks will have their own eligibility criteria for prospective borrowers. These include:
If you are self-employed or do not have a regular income, you must demonstrate the ability to service monthly instalments to be eligible for a loan. Each lender will assess your eligibility based on its criteria. Types of home loansHDB offers a concessionary loan for HDB buyers only, at an interest rate that is pegged at 0.1% above the CPF Ordinary Account interest rate. This interest rate is revised in line with the revision of CPF interest rates. For banks, there are two main types of home loans:
Here's how they compare:
The reference rate can change at any time, depending on the prevailing market conditions. Banks must inform you in advance (usually 30 days) before they change the interest rate on your housing loan. To understand the differences of the various bank loan packages better, ask your bank to explain:
Note: A promotional rate is lower than the rate for the remainder of the loan. Make sure you know how much your monthly payments will increase when the promotional period is over. How interest is computedThe common method of calculating interest is monthly reducing (monthly rest). Even a small increase in interest rates can affect your monthly instalment and the effective interest rate that you will end up paying for your loan. To illustrate, here's what happens to the monthly instalment for an S$800,000 30-year loan at different interest rates using monthly rest method:
TipEven if you are eligible for a bigger loan or a longer loan tenure, do not take it up unless you are sure you will have the resources to fund it. See also: Mortgage Calculator What you can do: Pre-pay your home loanYou can consider making a lump sum pre-payment on your home loan to reduce your monthly payments and save on interest over the long run. Be sure to check if there are any penalties first. Example: Partial pre-payment If you have an outstanding home loan of $800,000 over 25 years, and you make a one-time partial prepayment:
Note: Assuming that the home loan interest rate rises to 5% per annum and remains at that level for the remaining loan tenure of 25 years. Subject to the terms and conditions of your home loan — check with your lender. All about your loanCheck the HDB Home Loan Eligibility Letter (HLE) and property loan factsheet for more details about your home loan. HDB Loan Eligibility LetterTo find out if you are eligible for an HDB loan and the maximum amount you can borrow, you will need to apply for an HDB Loan Eligibility (HLE) letter. HLE helps you plan for your home purchase by giving you information on how much you can borrow, the monthly repayments, the amount of cash you need and other terms and conditions. TipAn HDB loan comes with certain eligibility criteria such as an income ceiling. Check if you qualify. Property loan fact sheetBefore you sign up for a home loan with a bank, the bank must provide you with a property loan fact sheet. It highlights how possible increases in interest rates will affect your monthly instalments, and contains the key features of the loan, including:
Ask your bank to take you through the fact sheet so that you know what you are committing to when you take up the loan. See also: Comparing HDB loans and bank housing loans Refinancing and repricingRefinancing means switching from your existing home loan to a new lender with lower interest rates. Refinancing at your current bank is called repricing, or conversion. You should review your home loan regularly to see if you can save money by refinancing, particularly if your lock-in period is over. Note: HDB flat buyers are not allowed to refinance their existing bank loan with an HDB loan. Before you refinanceBefore refinancing, consider if you are better off:
Go through these steps to check and compare your options: 1. Check with your current bank Ask your existing bank for repricing options, before checking with other banks. Check whether the lock-in period still applies to your loan. If so, certain penalties may apply. Ask your bank the following questions:
2. Compare loan packages It's always a good idea to compare the repriced loan from your current bank with other refinancing packages to see if you should switch. You should compare:
Your instalment amounts and interest rates will likely change if you change your loan package. Banks are required to provide you with a residential property fact sheet to explain the key features of the loan package. Take this opportunity to ask questions such as the penalty fees for early loan repayment, or bundled products, such as mortgagee interest policy, and compare with other loan packages to understand the differences. 3. Read the fine print Before committing to a refinanced housing loan package:
What if you can't pay?If you have trouble keeping up with your monthly payments, approach your mortgagee quickly (HDB or the bank). HDB may be able to better advise you on alternative options, while the bank may be able to help you restructure the loan. Your home loan is secured against your property. In case of a loan default, HDB or the bank has a first charge and the CPF Board has a second charge on your property, if CPF savings have been used for downpayment or to service the loan. If you fail to make the home loan payments when they are due, the first charge allows HDB or the bank to sell your home and use the sales proceeds to pay off what you owe the bank. The CPF Board is entitled to the remaining sales proceeds to recover what has been deducted from your CPF OA. Download: Managing housing loan arrears with financial institutions - what are my options? TipIf you are using CPF to service your housing instalments, it makes sense to pay off the loan by the CPF withdrawal age of 55, due to the lower CPF contributions from age 50 onwards. With lower contributions to your Ordinary Account, you may have to use more cash for the loan repayments. See also: Managing debt: What you can do Find out moreDownload the guide: About Housing Loans: Key Questions to Ask Your Bank Before Taking a Housing Loan Is the process of paying off debt with regular payments made over time?Amortization: Loan payments by equal periodic amounts calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
What loan is repaid with periodic payments of both principal and interest?An Amortized loan is a loan with scheduled, periodic payments that consist of both principal and interest. An amortized loan payment pays the relevant interest expense for the period before any principal is paid and reduced.
What is amortization of a loan?The word amortization simply refers to the amount of principal and interest paid each month over the course of your loan term. Near the beginning of a loan, the vast majority of your payment goes toward interest.
What is the meaning of monthly amortization?Related Definitions
Monthly Amortization Payment means a payment of principal of the Term Loans in an amount equal to (x) the then-outstanding principal amount (including any PIK Interest) divided by (y) the number of months left until the Maturity Date.
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