Taking the plunge into homeownership is a significant milestone, but navigating the home loan process for the first time can be overwhelming. One of the biggest concerns you might face is the initial cash down payment since even a small percentage of the property’s value can require a huge sum. Plus, you also need to understand how much you can borrow – whether you’re taking out an HDB loan or a traditional bank loan.
Here, we will discuss the factors that determine your borrowing capacity, explain the LTV ratio, and offer tips on choosing the best home loan in the competitive Singaporean property market.
What Is a Loan-To-Value (LTV) Ratio?
In a nutshell, the Loan to Value ratio (LTV) is the maximum amount you can borrow to finance your property purchase. It refers to the percentage of the appraised value or purchase price of a property that a financial institution is willing to lend to a borrower.
LTV for HDB Concessionary Loans
The Loan-to-Value (LTV) ratio for HDB Concessionary Loans is more favorable compared to bank loans, allowing eligible buyers to finance a more significant portion of their flat’s purchase price.
For HDB Loans, the maximum LTV ratio is 80%. This means that you can borrow up to 80% of the purchase price or the market valuation of the flat. The remaining 20% can be paid using your CPF Ordinary Savings Account or cash or a combination of both.
LTV for a Bank Loan
If you opt for a bank loan, the maximum LTV limit is generally set at 75%. This limit applies if:
- It is your first property purchase
- If your loan tenure is up to 30 years or less; or
- If the borrower’s age does not exceed 65 years old
Note that you are required to pay a minimum of 5% downpayment in cash and the remaining 20% can be paid through a combination of cash or your CPF Ordinary Account.
You will get an LTV limit of 55% for your home loan if the tenure is more than 30 years (private property), if more than 25 years (HDB flat), or if the loan period is expected to extend beyond the borrower’s 65th birthday.
The LTV limit further drops if you already have an outstanding housing loan.
Read Also: Home Equity Loan
What Is the Maximum LTV? Is It Guaranteed?
In Singapore, the Loan-to-Value (LTV) ratio limits for housing loans vary depending on several factors, such as the type of property, the number of outstanding housing loans, and the loan tenure.
Additionally, HDBs and banks are not required to let you borrow the maximum LTV. This means the actual loan amount you receive may depend on factors such as your income, credit history, and existing financial commitments.
Note: Aside from LTV, you might also want to consider the Mortgage Servicing Ratio (MRS) which is the portion of your income that goes towards repaying the mortgage – capped at 30%.
Factors That Can Lower Your LTV
- Loan tenure: A longer loan tenure, for example, more than 30 years that combined with the borrower’s age, exceeds 65 years can result in a lower LTV.
- Number of outstanding housing loans: If you already have one or more existing housing loans, the LTV limits decrease for the next housing loans. This is to prevent over-borrowing, causing the borrower to face difficulty in repaying multiple mortgage payments.
- Type of property: The LTV limits may vary depending on the type of property you are purchasing, such as a private residential property, an HDB flat, or an executive condominium. Additionally, the remaining lease of the property can also affect the LTV.
- Credit history: A poor credit history or a low credit score can negatively impact the loan amount you are eligible for. Banks and financial institutions may offer a lower LTV ratio to borrowers with poor credit, considering them higher-risk candidates.
- Income stability and financial commitments: Your income stability and existing financial commitments, such as car loans, personal loans, or credit card debt, can affect the LTV ratio offered to you.
Banks may also look into your Total Debt Servicing Ratio, which is the portion of your gross monthly income that goes toward debt payments. It should be less than or equal to 55%. Lenders take these factors into account to ensure that you can comfortably repay the housing loan without compromising other financial obligations.
How To Choose the Best Home Loan
Choosing the best home loan in Singapore will depend on your unique financial situation, preferences, and property type. Here are some factors to consider when selecting the right home loan for your needs:
- Interest rates: Compare interest rates offered by various banks and financial institutions. Home loans in Singapore usually come with fixed or floating interest rates. Fixed rates provide stability with a consistent rate for a predetermined period while floating rates vary based on market conditions, such as the Singapore Interbank Offered Rate (SIBOR) or the bank’s internal board rate.
- Loan tenure: Consider the loan tenure that best suits your financial situation. A longer loan tenure means lower monthly repayments but higher total interest costs over the loan’s life. A shorter loan tenure results in higher monthly repayments but lower total interest costs.
- Loan-to-Value (LTV) ratio: Assess the LTV ratio limits offered by various lenders, as this can impact the amount you can borrow.
- Fees and charges: Be aware of any fees and charges associated with the loan, such as processing fees, legal fees, late fees, and early repayment or refinancing penalties. These costs can impact the overall affordability of the loan.
Take the time to research and compare multiple home loan options before making a decision. Consult a mortgage broker or financial advisor or use loan comparison platforms to find the best home loan for your needs.
Top 5 Banks Offering Home Loans
1. HSBC Home Loan
HSBC offers competitive interest rates for HDB housing loans. You can choose between fixed or floating rate packages, or a combination of both. They offer a fixed interest rate of 4.25% p.a. with a lock-in period of 2 years. They offer up to 35 years of loan tenure for private properties and up to 30 years for HDB flats, depending on the age of the borrower.
2. Standard Chartered Home Suite
Standard Chartered offers up to 75% home financing. Plus, the bank offers a lock-in period if you purchase a completed property. In terms of interest rate, they use a 36M Fixed Deposit Rate which is currently 0.72% per annum.
3. DBS Bank Home Loan
DBS is one of Singapore’s largest banks and offers a range of home loan options for both HDB flats and private properties. They provide fixed and floating rate packages, with the floating rates pegged to the Singapore Interbank Offered Rate (SIBOR). Among their fixed rate packages is a fixed 4.0% p.a. interest rate with a lock-in period of 5 years.
4. OCBC Bank HDB or Private Home Loan
OCBC offers competitive home loan packages for HDB flats, private properties, and executive condominiums. They provide financing of up to 75% of your property’s valuation. Plus, you can choose from a wide range of fixed-rate packages as well as floating rate packages pegged at 3M SORA for Eco-Care Home Loan. Best of all, they offer flexibility to repay up to 50% of the loan amount in the first 2 years.
5. Maybank
Maybank offers home loan packages for both HDB flats and private properties. They provide up to 75% financing, plus you can enjoy a cash rebate when you refinance your existing home loan with them. They provide fixed-rate packages and floating rate packages pegged to 1M Compounded SORA.
Conclusion
Each borrower’s situation is unique, so it is crucial to strike a balance between your borrowing capacity and financial comfort. Make sure that you can comfortably commit to the monthly debt repayments without compromising your other financial commitments.
Key Takeaways
- The Loan-to-Value (LTV) ratio for HDB Concessionary Loans is capped at 80%. You need to pay the remaining 20% in cash or CPF Ordinary Account, or a combination of both.
- For banks, the maximum LTV limit is generally set at 75%. You need to pay a minimum of 5% downpayment in cash while the remaining 20% can be made through cash, CPF Ordinary Account, or both.
- Several factors can lower your LTV ratio, including loan tenure, type of property, outstanding housing loans, and credit history.
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