There are a number of mortgage financing options available for real estate purchases in Singapore. Below is a list of the major options, so that you can compare your options and decide which is the right one for you given your circumstances.
Your personal loan in SG is set for a time period, typically between 1 to 5 years. The current interest rates on most of these packages are 1% over prime but depend on how long your mortgage is fixed for. The advantage of a fixed rate package is a certainty, which means you know what your monthly installments will be for the term of the loan. The disadvantage is that most packages have no option for early redemption, and you cannot adjust your interest rate if circumstances change.
Singapore Interbank Borrowing Offer Rate (SIBOR) is the publicly quoted rate that banks lend funds overnight to each other at. As the SIBOR increases or decreases, so does the rate of interest on your loan. The typical spread between the SIBOR and your home loan will be 1%, though the rate will increase with the length of the loan.
The Swap Offer Rate (SOR), in layman’s terms, it is the cost for trading SGD funds into USD funds for a certain time period. With this peg, your loan rate will fluctuate with U.S. economic conditions and the foreign exchange market. The usual spread is 1%, with the rate increasing with the term of the loan.
Banks will occasionally offer a combination of variable pegged rate with fixed rate mortgage loans. In these cases, some portion of the loan would be fixed, while the remainder would be pegged to one of the previously discussed benchmarks.
This is a great option for people who tend to have a lot of spare cash on hand. The bank will set up a deposit account where the interest earned is used to offset the mortgage payments for your loan. The rate of interest is usually enough to offset up to 70% of the cost of your mortgage financing.
These loans are offered by the Housing Development Board (HDB) for the sole purpose of financing HDB properties. Currently, HDB financing is 2.6%, which is higher than all the mortgage plans offered by banks.
These mortgages are pegged to the average fixed deposit rate in Singapore banks for deposits ranging from $1,000 to $9,000 for 12 to 24-month terms.
With these loans, you only need to pay the interest on your mortgage. However, these loans are only available for business loans and not personal loans. The rate of interest is typically significantly higher than normal loans that include principal payment.
These loans only require the partial repayment of the principal alongside the interest payments. Usually, the rate of principal repayment is set to 50% of what it would be for a normal mortgage, which helps borrowers who may struggle to make monthly payments.
In conclusion, plan properly and seek professional guidance before taking out any kind of loan for purchasing a property. Be sure that you are only buying properties that you can afford to make regular monthly payments on.
3 Oct 2016