See All Home Loans 2021

Naturally most people will think that the best home loan means those with the lowest interest rates in the market.  However, they forgot that there’s generally a trade-off between lower rates during the promotional or lock-in period typically two years, and higher interest rates thereafter when the lock-in ends.  And there’s a reason why lock-in may be two years for most home loan packages but the legal subsidy (or cash rebate) clawback period is three years.  Hence, the interest rate in the third year of the mortgage is still an important consideration notwithstanding the fact you can reprice within the bank.  This is probably one of the most overlooked factor for refinancing.

Understand there are different types of home loans in Singapore.  Besides choosing the lowest headline interest rate in the first few years, there might be other pertinent considerations you should consider:

(a) Fixed rate home loan vs. ARM (adjustable rate mortgage)

This is often the most difficult decision to make as it requires some expert view on the direction of interest rates over the medium term. Hence, it warrants a separate discussion of its own (see Q5 below).

The best home loan should allow you to hedge your interest costs when rates are rising during that part of the interest cycle; and let you reap the benefits of a quickly falling mortgage peg in periods when rates crashed as we have just witnessed in 2020.  So, choosing the right mortgage peg is important for a home loan which lead us into our next point.

(b) Choosing the right home loan mortgage peg: SIBOR (or SORA), FHR or BOARD?

Generally there are two types of mortgage pegs that banks will price their home loans on. These are reference indices which value will vary over time and hence the mortgage interest and repayment every month will also vary accordingly.

(1) BOARD

The first type is banks’ internal loan pegs which can be Prime or BOARD lending rates.  Prime plus a spread is used more for corporate loans.  Consumer bridging loan is still charged at “prime plus” rate for some banks.  BOARD is more commonly used and no matter what acronyms are used by various banks – it is basically a lending peg which is set and determined solely by the bank.  And sometimes within the same bank you can have many tranches of BOARD rates with serial numbers based on dates.  This allows the bank to decide to raise the loan peg (and hence interest charged) for certain groups of customers based on when the whole batch of loan books were signed, but not for the entire mortgage portfolio.  As the bank could raise BOARD rate unilaterally and selectively, and this information is not published anywhere (other than giving a one-month notice in writing to affected borrowers), BOARD is deemed the mortgage peg with least transparency.

(2) FHR/FDR

There’s yet another kind of banks’ internal loan pegs first made popular by DBS bank in 2014 when they started pegging mortgages to fixed deposit rate tranches called FHR (fixed deposit home rate).  Until today, some people still get confused and thought that the FHR home loan they signed were fixed rate home loans, when they are just floating rates pegged to fixed deposit rates published by the bank.  For this reason we like to refer to such loan pegs as FDR home loans (fixed deposit rate home loans).  More banks started introducing FDR home loans of their own from 2015 the likes of OCBC, UOB, MAYBANK, SCB, HSBC but slowly one by one retracted such loans and by 2020 only 3 banks still offer FDR home loans: DBS FHR, SCB FDR and HSBC TDMR.  FDR pegs were initially popular when interest rates were low but subsequent rate hikes in the period from 2017-2019 gave them a bad name as the market perceived FDR pegs to be “quick to rise but slow to come down”.  It has very much taken on the nature of BOARD rates except that fixed deposit rates were published officially on the banks’ website and hence more transparent.  At MortgageWise, we do track the movements of FDR/FHR over time for a historical perspective on how banks managed such internal loan pegs vis-a-vis SIBOR which is the second type of mortgage peg we like to discuss.

(3) SIBOR/SORA

SIBOR (Singapore Interbank Offer Rate) is a market-determined index which is administered by ABS (Association of Banks in Singapore).  In short, it is the money market rate where banks lend to one another in the money market in Singapore.  ABS will collate and calculate SIBOR based on the bid and offer rates submitted by 20 participating banks every morning by 11.30am on a daily basis.  As SIBOR is set by market forces based on demand and supply, it is not possible for any one bank to unilaterally decide to raise or lower it.  Historically SIBOR is known to correlate very closely with the US Fed funds rate and this correlation is tracked and published by MortgageWise here.

However with the scandals on LIBOR and the subsequent abolishment of SOR (which was also used by some banks to price mortgages previously before 2010), MAS (Monetary Authority of Singapore) has mandated that banks replace SIBOR with the new compounded SORA (Singapore Overnight Rate Average) in phases by 2024.  SORA is a more robust loan peg published on MAS’ website.

Since 2019, we have advocated switching to market-based mortgage pegs like SIBOR (and soon to be SORA) as we do not see the need to pay a premium in interest rate to go on fixed rate when rates have peaked.  Going forward, we do not see interest rates rising globally in a “lower-for-longer” interest rate environment.  See Q6 below for more on our interest rate outlook.

(c) Waiver of penalty due to sale of property during the lock-in period

The best home loan lets you save not just in while servicing it, but when you decide to end it suddenly.

After the covid-19 pandemic, we anticipated a trend for bigger homes or an extra bedroom room or at least a study.  This has already borne out in the rising prices for bigger HDB flats in Singapore.  The need for space is evident with WFH (working from home) and HBL (home-based learning) set to become part of the new norm both for work as well as for schools.

Even for those not planning for sale of your existing property, you will never know when your plans might change, or when you will suddenly have an offer that’s proving too good to pass up.

The problem with sale is that most home loan packages come with 2-year lock-in period which means you have to fork out additional $10,000 in redemption penalties based on 1.50% on a typical $700,000 mortgage.  That’s much more than the interest you’ll save when comparing between various home loans typically just within whiskers of 0.20% ($1,400 per year on the same $700,000 mortgage).  So, choose the home loan package that comes with waiver of this penalty when the redemption is due to sale of the property during the lock-in period.

Note however there would be that $2,000 legal fee clawback to pay when you break a loan due to sale and that happens within the first 3 years of the tenure.   Still, that’s only 20% of an estimated $10,000 penalty (for $700,000 home loan).

(d) Prepayment partially without penalty within the lock-in period

The best home loan should also allow you to prepay regularly especially when you get your annual bonuses.  That might prove to be the single most important thing to do to reduce mortgage costs in the long run, more so than choosing the right home loan package.  Reducing the outstanding loan regularly helps not only to reduce the monthly repayment, but it allows you to opt for a shorter tenure when you next refinance the home loan – which all leads to a much reduced interest component in your monthly repayment.  And if you also choose to work with a trusted mortgage broker over time, who ensures that you jump from one lowest rate home loan to the next whenever your lock-in/claw-back period expires, you definitely save on all fronts of a mortgage equation: tenure, principal amount as well as interest.

As many of our clients have discovered in the “lower-for-longer” interest rate environment of the past decade (2009-2020), regular prepayment has helped to lessen their financial burden and they will end up with a fully-paid property much earlier than thought.  Choose the home loan package that lets you prepay without penalty up to a certain percentage of the outstanding home loan, at any point in time.

(e) Free conversion

Free conversion simply means that the bank will allow you to “convert” to another home loan package within the bank at no costs, ie.waiver of the repricing or conversion fee typically at $300-500, at the end of your lock-in period.

How is that important?  This goes back to what we just said at the start where most homeowners overlooked the interest rate in the third year of the tenure where they can’t quite leave yet.  This means that there is already less bargaining power with your existing bank to negotiating for the lowest prevailing rate out there be it fixed or floating.  And if you add this $500 repricing fee which is akin to a 0.1% or at least 0.05% interest in one year, you are definitely getting the shorter end of the stick.

And do you know from time to time there might even be free conversion WITHIN the lock-in period.  This means that you can actually switch to a more favourable home loan package when something new and better comes up which wasn’t available at the point when you refinanced the home loan.  Speak to our consultants to find out more.

You can see there is no one best home loan for everyone.  Even the interest rate per se differs based on the loan quantum these days.  The lowest headline interest rate you see on most broker sites are reserved only for the very big loans like above $1.5m or $2m.  For the average loan sizes of between $500,000 to $1m, the interest rate offered might differ based on “deviations” hence it’s important you work with established brokers who can get you better overall terms – the lowest rate as well as the best overall terms of a mortgage.

Also find out the unique attributes of DBS Home Loan, OCBC Home Loan, UOB Home Loan and how to choose between the Big 3 local banks, plus a few other worthy international banks and why we recommend them.

Banks that offer and view mortgage lending as a strategic core business will be preferred over smaller lenders who may go in and out of the mortgage market and become uncompetitive after a while.

For this reason, we see many broker sites in Singapore touting they offer hundreds of home loan packages from 16 lenders in Singapore.  These are just gimmicky to us.  In reality there are only really 12 lenders and if we normally zoom in on that 7 D-SIBs (Domestically Systematically Important Banks) in Singapore with the depth and breadth in scale and operations to compete effectively in the mortgage business.  These are the Big 3 local banks along with StanChart Singapore, Maybank Singapore, Citibank Singapore and HSBC Singapore who have all incorporated local operations as mandated by MAS.  Ceteris paribus, you will prefer to go with bigger names who will be here to compete for new mortgage business and also offer the full range of mortgage features.

As the Big 3 local banks command almost 80% of the mortgage market, find out the unique attributes of DBS Home Loan, OCBC Home Loan, UOB Home Loan and how to choose between them.

Increasingly, the market has also come to recognize the appeal of very localised foreign banks as they offer much more competitive interest rates especially in periods of low interest rate environment (we have observed).  In August 2020, StanChart became the first foreign bank to conferred a SRFB (Significantly Rooted Foreign Bank) status by MAS allowing it to open digital-only banks as a separate entity, the same privilege given to local banks.  They will have the same flexibility as local banking groups to incorporate subsidiaries to pursue new and alternative business models on its own or with joint venture partners.  This augers well for the future of mortgage business in Singapore as we look forward to more innovations in this space.

Which bank is best for home loan in Singapore depends largely on how aggressive and consistent is the lender’s mortgage strategy in Singapore.  Local banks used to be able to compete aggressively on fixed rates but this does not seem to be true in recent years.  Hence, we need to factor in a myriad of factors in deciding that which includes but not limited to:

• Who has the lowest headline interest rate in the promotional years?
• Who has the lowest interest spreads after the lock-in period?
• Who has the best overall loan features in terms of waivers, prepayment, legal subsidy, etc.
• The scale of operations in mortgage lending business and its track record in staying competitive all through the year
• The risk appetite of the bank when it comes to credit approval and risk policies

No one bank is best for housing loan. However, we generally favor any of the seven D-SIB banks whose promotional offers and hunger for new businesses (and hence more deviated rates) vary from time to time. Check with our team of very experienced consultants who can share more with you.

Current home loan rates fluctuate in the range of 1.00% to 1.50%.

See comprehensive display of the Top 10 home loan packages in Singapore – both fixed and floating rate, using our interactive Rates Display.

This is an understandable concern even when US Fed had announced its intention to keep interest rates at zero until 2023.  The underlying fear of rising interest rates is so great in Singapore and banks have long exploited this fear to earn higher interest margins throughout the entire interest rate cycle, be it peaks or troughs.

For this reason, it is not wrong to say that the only way to derive maximum savings on mortgage interest costs is to work with a trusted mortgage broker in the long run.  Otherwise most people who do not follow closely events in financial markets and watch the US Fed will be jumping from one fixed rate home loan to the next fixed rate package even when interest rates are going nowhere or flat.  This is especially true for first-time home buyers new to the mortgage market in Singapore.

Right now, we think that with the massive amount (almost unlimited) of stimulus liquidity still out there and Fed’s announced change in its policy stance to allow inflation to overshoot, interest rate will stay muted all through 2021, and even beyond.

Such mortgages for properties under construction are known as BUC loans (building under construction) in the industry.  Local banks are known to be fiercely-keen to compete for market share in BUC loans evident from the many bankers present at property show flats and launch events.  This is because the banks will then be assured of a certain pipeline of drawdowns of the loan over the next few years which protects their profitability and market share.  Typically, as property launch events can sell out in the hundreds over just a weekend, losing out such a big chunk of sign-ups could spell trouble later on.

Many first-time buyers may not be aware of what to look out in BUC loans as they are often thrown with bankers by property agents at the show flats.  Typically, agents and bankers jostle to get the final signature and will waste no time to hurry buyers to quickly sign for their loan.  Each banker will claim that their home loan package is the best when the reality is – there is often very little differentiation between the various banks who try to match one another in this competitive segment.

First-time buyers new to the mortgage game need to understand the following:

• As BUC home loans are drawn down progressively, starting at 5% (on purchase price) on completion of foundation works about one year after the launch until the maximum of 60% (again on purchase price) at T.O.P. (temporary occupation permit) which is 3 years down the road, the interest rate in the initial years is less important.
• Even though all BUC loans come with no lock-in period, the cancellation fee typically 1% becomes a “pseudo lock-in” and hence no one will refinance a BUC home loan at least during the construction phase.
• Even at the point of T.O.P., there’s still a 15% of the loan yet to be disbursed and any attempt to refinance to another bank will attract the 1% cancellation.And there’s usually a minimum $1,000 of cancellation fee to be paid even if 1% on undisbursed loan works out to be a lower amount.  This fee is also applicable if you sell the property at T.O.P.
• How would you know if interest rate environment will change or become very different during the construction period and at T.O.P.? Yet a BUC home loan effectively has a “pseudo lock-in” on you that is much longer than the lock-in for completed properties.  The irony then is – many homeowners have woken up to the value-add from consulting with a professional mortgage broker on the refinancing for a completed property, whereas first-time buyers for BUC properties are relying on their own encounters with their agents to make this decision.

There are at least 6 factors to consider when choosing between fixed rate home loan or floating rate home loan:

1. Owner-occupied versus investment property
   In general, floating rate is more suitable for investment property as there is rental income to offset increases in monthly repayment.  On contrary, mortgages on owner-occupied properties are serviced entirely from employment income and any interest hikes is felt more acutely.  Hence fixed rate home loan for own-use property makes sense especially when there is less chance of a sale during the fixed rate lock-in period.
2. Intention to sell
   As fixed rate home loan comes with a penalty of 1.50% if the loan is redeemed in full due to sale within the lock-in period, it is better to choose a floating rate home loan for those who are selling.  Albeit, from time to time, there are banks offering full or 50% waiver of this penalty if due to sale.
3. Gap between fixed and floating rate
   As a rule of thumb, is the gap between the lowest fixed and floating rate is less than 50 basis points or 0.50%, it justifies the decision to go fixed while the interest cycle is going up.
4. Size of the outstanding home loan
   Smaller loans below $500,000 generally costs more to refinance or reprice and you would be better off on a floating rate home loan where the spread stays constant and does not step up after the promotional years.
5. Job stability
   Similarly, if there are headwinds in your industry with risk of potential job loss leading to temporary loss of income, floating rate home loan with constant spread will be preferred.
6. Outlook on interest rate over the next few years
   In general when rates are rising (like from 2015 to 2018), you will benefit more by locking down a fixed rate home loan at early stage of the cycle.  The reverse will be true then when rates are falling where floating rate home loans will be favoured.  Between the cycles is when the decision becomes tougher and it is here that professional mortgage brokers make the biggest difference in terms of dispensing the right advice.  After all this is what they do day in and day out – monitoring macro environments and tracking interest rate movements.

Reprice means changing of a home loan package within the same bank; Refinancing refers to moving your home loan to another bank with better rates altogether.

Quite obviously a big part of the decision to stay or switch banks centres on who offers better rates and the cost of staying (conversion fee) vs. cost of refinancing (legal fee and valuation fee).  However, you may also want to explore the different loan features offered by various banks in Singapore which may sometimes outweigh the slight difference in rates per se.

Our observation from the collective experience of all our clients over the years has pointed to an obvious fact – it does not pay to stay loyal to the same bank which usually offers the lowest interest rate to new customers of the bank.  This is a fact-of-life that spans all industries.  So it pays to work with a professional mortgage broker who can compare for you the best home loan rates in Singapore before you sign.

Of course, you know what we will say here.  But don’t just take our word for it.  We ask our clients to check and validate what we present as the best rates.  And to be honest there are times when we do not get paid for our recommendations, like when we ask them to save the trouble and simply reprice, or when we tell them about some direct-to-bank packages.

You see, we believe in the power of free markets and we urge all consumers in Singapore to support and embrace free market in order to bring about change and price competition which will ultimate benefit us all.  To do that everyone must make that little bit of effort to change lenders and not merely reprice out of convenience.

Simply put, if another bank is indeed offering a better package than what your existing bank can offer, support the mortgage brokerage industry and make that switch when we can show you net savings from doing that.

As the mortgage industry here operates in a different way from those in other countries for example in UK where it’s quite commonplace for borrowers to pay a brokerage fee of 1%, we would say yes to that question – always go through a mortgage broker here in Singapore simply because it’s free.  Also, because the home loan package and interest rate remain the same, yet you get a better deal through the broker.  How’s that possible you would wonder as the bank ends up paying a commission to the broker?  Well, unknown to many, banks still pay commissions to their own banker when there’s no broker involved.  The banker just gets to earn more in the transaction.  On the other hand, when we the brokers bring a client to the banker, he or she earns less commission but they won’t mind working with us as we bring them the volume business.  Either way through the broker or direct to the bank, the distribution costs to the bank remains more or less the same.  So, understand that mortgage specialists working in banks are very much sales people who gets paid commissions based on the home loan packages they sell to you some which are of higher margin than others, on top of basic salary.

To summarize, always go through a mortgage broker in Singapore because:

• The home loan package is the same be it via a broker or direct to the bank, otherwise we will tell you (though we can’t say the same about other brokers).Here at MortgageWise, we take this commitment to all clients very seriously as that is how we have a growing list of accolades and repeat businesses from clients over the years.
• We help you compare the various packages with the most accurate and updated rates, and using a very comprehensive format in our Rates report.Check it out.
• You get expert advice on what important considerations to mull over, and not speak to 5-6 different sales persons from the various banks and get all confused with numerous rates and features some which serve only to distract.
• You get additional perks from brokers as we believe in a simple rewards gift for you as a token of our appreciation – for coming through us for the home loan rather than going direct to the bank.Check out our rewards program.  Not to forget, you also enjoy slightly more preferential legal fees from our partner law firms.
• You can tap into the full resource of our network with some of the best and most senior bankers, lawyers, and even financial advisor (for your mortgage insurance needs).That is certainly much better than calling the banks’ hotlines and get randomly assigned to some new mortgage specialist recruits, and that’s provided you don’t mind all the waiting to start with.

Yes, by and large banks in Singapore are very open to foreigners buying properties in Singapore as long as you can show you have income from work.  Such overseas denominated income may undergo some hair-cut when put through assessment for a mortgage, ie. a slightly lower loan quantum approved.  However, there are other ways to increase the loan amount which you should speak to our experienced team of mortgage consultants.

There are however some restrictions for certain segments of the market.  We will not be able to list out all these restrictions which also changes from time to time but some examples would be:

• Some banks are unable to lend to US citizens working in the US
• Some banks are unable to lend to those working in Australia and New Zealand (including Singaporeans)
• Those working in the commonwealth jurisdictions are generally embraced (except AUD/NZ above) but those working in countries where it is hard to validate tax document might not be able to get a loan
• In general employment income works better than self-employed income and be prepared to show up to 12 consecutive months of payslip with matching salary-crediting bank statements
• Those working in PRC may be asked to pledge a certain amount of funds with the bank, on top of income assessment.

The above restriction generally do not apply to Singaporeans working overseas.

As home loans from Housing Development Board are pegged to CPF Ordinary Account rate (currently at statutory low of 2.50%) + 0.10%, ie. 2.60%, this is way above market interest rates at the last peak (2019) and indeed so for much of the last decade.

We are of the view that with massive liquidity coming from repeated rounds of QE (quantitative easing) from central banks all over the world, and the dearth of inflation in this century, interest rates may no longer go back to the heights of above 2.50%.  As such, we do recommend in general for HDB homeowners to refinance to the best HDB home loans from private banks as the gap (between HDB loan and bank loan) is simply too wide to be ignored.

(Note: We do have a minimum loan criteria of S$300,000 before we will broker any loan.  Find out why)