Mortgage

Rates and thresholds change. The current figures are kept in one place: the Singapore property rules reference.

What it is

Most people do not have the full price of a property sitting in a bank account. A mortgage closes that gap. You pay a down payment upfront in cash and CPF, and a bank or HDB lends you the rest, using the property as security. If you ever stop paying, the lender has the legal right to eventually take back the property to recover what it is owed, which is why lenders check your income carefully before approving a loan.

How it works

Before you apply, a bank works out how much it will lend using your gross income, your existing debts, and a rule called TDSR, which caps all monthly debt repayments at 55 percent of gross monthly income. If you are buying an HDB flat or an Executive Condominium, a second, tighter cap called MSR limits housing repayments alone to 30 percent of income. The bank also stress tests your repayment ability at a floor interest rate higher than the rate you are actually quoted, so the loan you qualify for can come in lower than a simple sum on the back of an envelope suggests.

Once approved, you receive an Approval in Principle, then a firmer Letter of Offer once you exercise the Option to Purchase. The loan is disbursed at completion, and your first monthly instalment usually falls a month or so after that. Every instalment is split between interest for that period and a portion that reduces the principal, the amount you still owe.

A simple worked illustration

Say a buyer borrows 800,000 dollars over a 25 year tenure at an illustrative rate of 1.5 percent per year, a rounded example only, since rates move and you should always confirm the current figure. The monthly instalment works out to roughly 3,200 dollars a month, made up of interest and a principal paydown that rises slowly as the years go by. This is a made up example to show the mechanics, not a quote for any real loan.

What first time buyers get wrong

• Assuming the advertised rate is fixed for the life of the loan, when many packages are only fixed for the first few years and float afterward.
• Budgeting from the quoted market rate rather than the higher stress test rate the bank actually uses to size the loan.
• Forgetting that using CPF Ordinary Account savings for the mortgage means those funds stop earning the 2.5 percent CPF OA interest rate, and may need to be refunded with accrued interest if the property is later sold.
• Treating loan approval as a formality rather than checking their own numbers early, before falling for a specific unit.

What to check

Work out your own TDSR position, and MSR position if applicable, before you start viewing units. Understand whether a package is fixed or floating, and for how long. Confirm current rates and terms directly with banks or HDB, since figures change over time. Winfred does not recommend a specific bank, loan type, or package here, this page explains the mechanics only.

Winfred Quek is an Associate Marketing Consultant at Crestbrick Pte Ltd (CEA Licence No. L31010886H). CEA R073319H. This page is for general information only and does not constitute financial, investment, or legal advice. Verify current figures with IRAS, HDB, CPF Board, or MAS before making any decision.