Buying a home is probably one of the biggest milestones in every Singaporean’s life, but finding the ideal mortgage — also referred to as a home loan — can quickly become overwhelming with so many options and a world of jargon.
Before you give up, a little clarity can go a long way, and by following a few key steps, you can find an ideal home loan in Singapore that suits your financial plans and gives you peace of mind.
Start by understanding your mortgage options
In Singapore, there are two main types of home loans: HDB loans and bank loans. Both have their strengths, and the right one depends on your unique situation.
HDB loans are available for eligible flat buyers, offering a fixed interest rate of 2.6%, pegged at 0.1% above the CPF Ordinary Account (OA) rate. They’re straightforward and reliable, especially if you value stability.
Bank loans, on the other hand, offer more variety. These include fixed, floating, and hybrid rates. Floating rates, often tied to the Singapore Overnight Rate Average (SORA), can start lower than fixed rates but vary with market conditions.
Decide between a fixed and floating rate home loan
Your next decision is whether to go with a fixed-rate or floating-rate loan. Each has its benefits, so think about what fits your needs.
Fixed-rate loans offer stability, with consistent monthly repayments during the lock-in period. If you prefer predictability and want to avoid surprises, this is a great option.
Floating-rate loans, meanwhile, are tied to market benchmarks like the SORA, so they fluctuate. They often start lower than fixed rates, which can help you save upfront, but there’s a trade-off — your monthly payments could rise if home loan interest rates increase.
Consider your risk appetite. If you like the certainty of knowing exactly what you’ll pay every month, fixed rates are the way to go. But if you’re willing to handle some variability for potential savings, a floating rate might suit you better. For more on the differences between fixed and floating rates, read our guide.
Know how much you can afford
Before diving into comparisons, it’s important to figure out how much you can afford to borrow.
In Singapore, the Total Debt Servicing Ratio (TDSR) limits your monthly debt repayments — including your mortgage — to 55% of your gross monthly income.
For example, if your gross monthly income is $10,000, your total debt obligations — including car loans, credit card payments, and your new mortgage — can’t exceed $5,500. If you’re looking to maximise your affordability, consider paying off smaller loans first. This can free up room for your home loan.
Compare mortgage providers in Singapore to find the best deal
Not all mortgages are created equal. Different banks offer varying rates, terms, and incentives, and the gap between the highest and lowest mortgage rates available could translate to thousands in annual savings for many Singaporeans. Taking the example of a 1% difference in interest rates for a $1 million home loan in 2024, interest savings can amount to about $6,500 a year.
Instead of manually applying with multiple banks and never getting the advertised rate you saw — which, by the way, has an impact on your credit score — you can simplify the process with platforms like Lendela. With a single application, Lendela matches you with multiple offers personalised to your unique needs and profile. This means less time spent searching, applying, and comparing, and more certainty that you’re getting the most competitive option available for your profile.
Understand the fine print on your home loan
Before committing to a loan, make sure you understand the details. Key things to look out for include:
Lock-in periods: These are typically two to three years, during which early repayment or refinancing incurs penalties.
Loan-to-value (LTV) limits: Most banks finance up to 75% of the property’s valuation, so you’ll need to cover the rest upfront.
Additional fees: Don’t forget about legal fees, valuation costs, and administrative charges.
For instance, repaying a $1 million loan early during a two-year lock-in period could result in a penalty of 1.5%, or $15,000. Knowing these terms upfront helps you avoid surprises further down the road. In fact, a key reason Lendela provides personalised support to every borrower is because we’ve discovered how much it helps people make informed decisions on their loans, and this remains a hallmark of our brand.
How to plan for flexibility in your home loan
Life changes, and so can your financial situation. That’s why it’s important to choose a mortgage that allows flexibility. Look for packages that let you make partial repayments without penalties — this can help you save on interest over time.
Mortgage refinancing is another option to consider. As mortgage rates evolve, refinancing to a lower rate can significantly reduce your monthly repayments, and is a tried and tested way for many Singaporeans in their financial management strategies. As demonstrated above, a slight rate difference can mean thousands of dollars saved over a year.
Gain confidence about your choice of mortgage with Lendela
Choosing the right mortgage might seem intimidating, but it doesn’t have to be. By understanding what your true options are, carefully assessing terms, rates, and providers, and aligning your decisions with your broader financial strategy, you can make your ideal home loan work for you.
This is ultimately what Lendela tries to do with our platform. By matching you with personalised and accurate mortgage loan options in Singapore, we take the guesswork out of the borrowing process and introduce true transparency.