Mortgage & Financing Guide

OVERVIEW
For a specific house type, do read our comprehensive guides to understand the buying process:

Budgeting, financing, and paying off your home requires many major decisions which can have enormous repercussions in the future. Do note that some conveyancing law firms only service certain banks and a cheap law firm might make critical mistakes processing your loan.

TL;DR: If you require a personalised walkthrough, I recommend Redbrick (and specifically Daniel) for their mortgage advisory services. They will provide you an optimal loan package and a conveyancing law firm at an attractive rate. Also, they cost you nothing as they take their fees from the banks.

HDB LOAN vs BANK LOAN
For HDB buyers, choosing between a HDB or bank loan is crucial. A lot of it depends on your finances, risk appetite, and outlook of future earnings (cash flow). Also note that properties bought before December 2021 are exempted from the new 55% LTV limit and can be refinanced with the previous 80% LTV limit.

INTEREST RATES: SIBOR, SOR, SORA
The Singapore Interbank Offered Rate (SIBOR) and the Swap Offer Rate (SOR) are the two main interest rate benchmark for local properties, however both are being phased out, starting 2020 till ~2024, to be replaced with the Singapore Overnight Rate Average (SORA).

Local banks have started to offer SORA home loans, which are generally more stable than SIBOR since SORA looks at historical trends and rates while SIBOR is forward-looking and up to the banks' discretion.

OPTION TO PURCHASE (OTP)
An Option to Purchase (OTP) is a legal agreement between buyer and the seller to buy a property. The buyer pays an option fee (1% of private property value) and is granted exclusive rights to buy the property for the option period (usually two weeks). If the buyer does not purchase (does not exercise the option) by the expiry date, the buyer forfeits the option amount paid.

The OTP agreement is drafted by seller’s lawyer for private properties (or HDB for resale HDBs) and is signed in person by both the buyer and seller after agreeing upon a sales price (or via the HDB portal for resale HDBs).  

BUYER'S STAMP DUTY (BSD)
BSD is tax paid on documents signed when you buy Singapore property, which is computed on the purchase price as stated in the dutiable document or the market value of the property (whichever is higher).

ADDITIONAL BUYER'S STAMP DUTY (ABSD)
Liable home buyers are required to pay ABSD on top of the existing BSD, which is computed on the purchase price as stated in the dutiable document or the market value of the property (whichever is the higher amount). Like BSD, ABSD only applies for Singapore property.

For property purchased by two parties of different buyer type, different ABSD rates will apply to both of them. In this case, the higher ABSD rate will be used. However, for married couples with one Singapore Citizen (SC) spouse, they can apply for ABSD Remission (as below).

Due to ABSD restrictions, it is now increasingly common for married couples to have one spouse buy the first property in his/her sole name, and down the road, the other spouse to buy a second property in his/her sole name, to avoid ABSD charges on either properties.

ABSD REMISSION (REFUND)
A married couple with one Singapore Citizen (SC) spouse is eligible for full ABSD refund on their first property (e.g.  an SC married to either a PR or foreigner) if the property is purchased under both names of the couple and both spouses do not own any residential property prior to this.

A married couple with at least one SC spouse is eligible for an ABSD refund on their second property if:

Apply for ABSD remission via the e-Stamping Portal > "Requests" > "Apply for Refund". Note that the 6-month sale timeline (including ALL refund conditions) must be adhered to and the refund application will be rejected if any conditions are not met.

Married couples should market their first property as early as possible to ensure they meet the 6-month sale timeline for the ABSD refund. To be fair and transparent to all Singaporean married couples, the refund conditions are consistently applied and there will be no extension of the 6-month timeline to sell the first property. Couples may consider selling their first property before buying their replacement property to avoid incurring ABSD.


BANK LOAN MAXIMISATION & EQUITY TERM LOAN (ETL)
There are a few ways you can boost your maximum bank loan amount, besides your ordinary payslip:

MORTGAGE SERVICING RATIO (MSR)
MSR refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for.

It applies only for housing loans for the purchase of an HDB Flat or Executive Condominium (EC) where the minimum occupation period (MOP) of the executive condominium has not expired.

Calculation: 

TOTAL DEBT SERVICING RATIO (TDSR)
TDSR refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for, and is currently capped at 55% across all property types.

It applies for any other property loans, local or overseas and takes into account ALL loan repayments, including credit card debt.

Calculation: 

CASH-OVER-VALUATION (COV)
COV applies only for resale HDBs and is the difference between the sale price of the flat and its actual valuation by HDB. It must be paid by cash (CPF and housing loans cannot be used).

You can estimate HDB's valuation of the resale HDB unit you are interested in by checking past transaction prices on online property portals (such as Property Guru, SRX, 99.co).

MAX LOAN TENURE & LOAN-TO-VALUE LIMITS (LTV)
The maximum loan tenure for housing loans is capped at:

For joint borrowers, use their income-weighted average age as their present age. This formula calculates their average age as it relates to their ability to repay the loan:

Example: Mr. Tan is 60 years old and has a gross monthly income of $8,000. His son Alvin is 30 years old with a gross monthly income of $10,000. Their income weighted average age is:

LTV refers to the loan amount as a percentage of the property’s value. The loan-to-value (LTV) limit determines the maximum amount an individual can borrow from a bank for a housing loan, and changes depending on the number of outstanding housing loans a borrower has.

Apply the lower LTV limit if the loan tenure exceeds 30 years (or 25 years for HDB flats), or the loan period extends beyond the borrower’s age of 65 years.

The loan amount you can borrow depends on the bank's valuation of the house, NOT on the purchase price. Also, if you want to purchase a house above the bank's valuation (and no bank can match that valuation), you would need to cough up the extra money with cash.

Example: If the seller is asking for $1.25M but the maximum any bank values the house is only $1.2M, you would have to top up that extra $50K with cash out of pocket, and the LTV limit will be based on the bank's valuation of $1.2M.

MINIMUM-OCCUPANCY-PERIOD (MOP)
The MOP applies to all HDB and newer EC flats (less than 10 years old), and is the period of time that you are required to physically occupy your flat before you can sell or lease any part of it on the open market. You also cannot buy a private property during the MOP.

The MOP is 5 years for almost all flats, and is calculated from the date you collect the keys to your flat.

For Prime Location Public Housing (PLH) flats, the MOP period is 10 years.

You can appeal to HDB to grant you a MOP exemption for your flat or EC due to special circumstances (e.g. divorce, death of spouse) so you can sell your house before the 5 years are up. However even if successful, you may still be required to pay Seller's Stamp Duty (SSD).

OWNER/OCCUPIER
Ownership and essential occupier status applies only for HDB and EC flats.

An Owner (or Co-Owners) have full rights to the HDB flat or EC, regardless of whether that party(s) has paid any money. An Essential Occupier is a family member who forms a family nucleus with the applicant to qualify for a flat from HDB. An Occupier does not have any share in the flat, even if the Occupier has paid for it.

People are given the Occupier status for several reasons:

However, Owner, Co-Owners and Essential Occupiers are all bound by HDB restrictions such as MOP rules and private property ownership.

MANNER OF HOLDING (JOINT TENANCY OR TENANTS-IN-COMMON)

When buying any house in 2 or more names, the purchase is made either as a Joint Tenancy or Tenants-In-Common.

For private property purchases, if you and your spouse are planning to buy a second house in the near-future (e.g. 3-5 years time), it is wise to purchase a house under the Tenants-In-Common 99-1 practice to avoid future ABSD as detailed below.

Joint tenancy applies the right of survivorship. This means that upon the demise of any joint owner, his interest in the flat would automatically be passed on to the remaining co-owners. This is regardless of whether the deceased joint owner has left behind a Will.

Example: Hubby, Wifey and Son own an HDB flat under joint tenancy. In the event of Hubby's death, the ownership of the flat will automatically be passed to Wifey and Son.

Tenants-in-common (TIC) means each co-owner holds a separate and distinct share in the flat. The right of survivorship does not apply. Upon the demise of a co-owner, his interest in the flat will be distributed according to his Will (if any). If there is no Will, his interest in the flat will be distributed to the beneficiaries in accordance with the provisions of the Intestate Succession Act.

Example: Hubby and Wifey own an HDB flat under tenancy-in-common with 60% and 40% share respectively. In the event of Hubby’s demise, his ownership in the flat (e.g. 60% share) will be distributed according to his Will, or according to the provisions of the Intestate Succession Act.

The 99-1 practice refers to dividing the house ownership in a 99:1 ratio which allows both parties to initially shoulder the mortgage loan burden equally, but when they are ready in the future, one party can sell their 1% share of the house to the other (who was holding 99%) to free up his/her name and buy another property without incurring any ABSD.

However, the 99% owner who buys over his/her spouse's 1% share has to pay ABSD (1% of the property price), CPF interest (compounded) and legal fees (around $2,300).

Example: Hubby and Wifey buy a house X, how much downpayment they each put up is up to them, but Hubby claims 99% ownership of house and Wifey claims 1%. The mortgage amount can also be jointly serviced by them with no restrictions. 
3 years later, they decide to buy another small house Y for investment. Wifey sells her 1% stake in house X to Hubby, who must also pay ABSD (a small amount) on this purchase (and legal fees) since it constitutes an 'additional property purchase' in the eyes of the law. Now Wifey's name is free to buy house Y using her sole name with no big ABSD or TDSR penalty.

Relationship and trust are important for this TIC arrangement, but if any dispute/divorce arises, either party can show bank statements proving how much cash equity they each put into the house for legal recourse.

Both refinancing and repricing your loan mean the same thing, just that repricing refers to loans that are refinanced with the same bank.

When you refinance your house after X years (can be as low as 1 year), you can lengthen the mortgage loan tenure to 35 years (from the original 30 years). Taking into account those X years which have passed, your effective loan tenure will now be 35-X years.

Many banks offer refinancing packages after 1, 2, or 3 years, the shorter the time frame usually comes with a slightly higher interest rate. You can even refinance with a different bank from the original, albeit sometimes with penalties.

Example: You bought a house for $1M in January 2020 and took a 30-year 70% loan ($700K). In January 2021, you decide to refinance the house, which lets you extend the loan tenure to 35 years. However, taking into account that 1 year you have already used (2020-2021), the loan tenure is now another 34 years from the time of refinancing (until January 2055).

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