At a glance...
After you’ve cleared the hurdle that is the down payment for your new home, don’t forget there are still the monthly mortgage instalments to go. Different home loan packages will come with different perks and features, so it’s important to explore your options and find the plan that works best for your needs (and saves you the most money!). We’ve put together a comprehensive list of what to look out for and our recommendations for the best home loans this year.
What Should I Look Out for in a Home Loan?
1. Type of Home Loan
There are two ways to categorise home loan types:
- Fixed interest rate vs floating interest rate
Which one you might prefer generally depends on your risk appetite (more on this later).
- HDB loan vs bank loan
If you’re buying an HDB flat, you have the option to take up an HDB loan. HDB loans have higher interest rates, but the rates are fixed, and the loans only require a 10% down payment, compared to the 25% required by banks.
2. Interest Rate
From one plan to the next, the interest rates might appear to vary by just a slight percentage. Still, the difference can add up to a considerable amount because each property is such a big-ticket item. Choosing the lowest interest rate between a few options could end up saving you thousands of dollars.
Interest rates tend to fluctuate with the market conditions but usually range between 0.80% and 2.50%.
Banks usually offer lower spreads, which means the first few years will be at a discounted rate before increasing back up later. The spread is the figure you see after “+”.
3. Lock-In Period
Most bank loans usually come with a lock-in period of up to five years, during which the interest rate is guaranteed at a fixed rate. During this period, you will be charged a penalty if you decide to make prepayments or cancel your home loan. The penalty is typically 2% to 5% of your outstanding loan amount.
This is because banks take on risk when they offer you a loan, and it would be difficult for them to plan their finances if borrowers could cancel their loans and jump ship shortly after getting the loans. The first few promotional years of lowered interest rates are meant to incentivise buyers to stick to the loan once taken.
If you’re purchasing a home that’s still under construction (yes, Building Under Construction (BUC) is the actual acronym for this), we recommend that you look for a loan with no lock-in period so that you’ll have the flexibility to refinance any time once the construction is done. Refinancing is when you fully repay your existing home loan or move your loan to a rival lender (usually because of their lower interest rates).
Fixed vs Floating Interest Rates
Fixed Interest Rates
If your home loan has a fixed interest rate, the same interest rate will apply through the period of the mortgage agreement. This has the benefit of stability and consistency and makes it easier for you to plan your finances, so it’s a great choice if you have a low risk appetite. The interest rates will not increase due to market fluctuations. However, there’s a price to pay for stability (literally) as fixed interest rates tend to be higher than floating interest rates.
During the lock-in period, the fixed interest rates are not tied to market or board rates. Once the lock-in period expires, however, they will be pegged to the market or board rates. This would then give you an indication of whether you should refinance.
Floating Interest Rates
Meanwhile, floating interest rates (also known as variable interest rates) depend on the fluctuations of the market. They are pegged to the Singapore Interbank Offer Rate (SIBOR), Singapore Overnight Rate Average (SORA), Board Rate or Fixed Deposit Home Rate (FHR), which change according to the index. (Take note that loans based on SIBOR will be discontinued by the end of 2024.
Floating interest rates would better suit those who have higher risk appetites. You might save more in a month where the interest rate dips but might need to pay more if it bounces back the next month.
Still, most banks usually give you a 30-day heads-up when interest rates are about to change. This gives you some time to consider refinancing.
Also, for SIBOR-based loans, banks usually offer either 1M (1-month) or 3M (3-month) SIBOR, which refers to how often the rates are refreshed. 3M SIBOR rates would be less volatile and risky as the rates are only adjusted every three months.
Here’s a summary of everything we’ve covered so far:
|Topic||Fixed Rates||Floating Rates|
|Volatility||Fixed rates, not volatile||Subjected to market fluctuations – high volatility|
|Interest Rates||Higher Rates||Lower Rates – spread applies after promotional rate period|
|Pegged||After lock-in period||Yes – FHR, board rates, SIBOR or SORA|
Home Loan Rates in 2022
HDB flat buyers, rejoice! You get to choose between an HDB loan or a bank loan. HDB loans have a fixed interest rate (the current rate is 2.6%, according to the HDB website and the down payment is just 10% of the purchase price of your flat, which makes it more affordable in the short term. The downside is that the HDB interest rate is much higher than what banks offer.
Speaking of which, bank loans can be either fixed or floating rates. Bank loans can be taken whether you’re purchasing a HDB flat or a private property. Check out the next two tables for a compilation of the best fixed and floating rates available, based on a loan of $500,000 and a tenure of 25 years.
Fixed Home Loan Rates
Maybank undoubtedly has the lowest interest rate at just 1.2%. This rate is only guaranteed for the two-year lock-in period, though. Beyond that, you can decide whether refinancing is a better option.
Although many banks offer higher interest rates with a higher lock-in period, OCBC’s fixed interest rate stands out because the rate of 1.38% is offered with the option to choose between a two-, three- or four-year lock-in period (do note that only HDB homeowners are eligible for the four-year lock-in period).
|Bank||Lock-in period||First Year Rate|
|OCBC||2, 3, 4 years||1.38%|
|Standard Chartered||2 years||1.86%|
Floating Home Loan Rates
Judging by interest rate alone, OCBC 3M SIBOR far outstrips all its competitors with a stunning rate of 0.46% per annum.
However, if you’re looking to refinance your bank loan soon, we would recommend the Maybank SORA instead with its short one-year lock-in period, which still sports a decently low interest rate of 1.04% p.a.
For floating interest rates, remember to keep an eye on the SORA and SIBOR rates, which will change all the time.
|Bank||Lock-in period||First Year Rate|
|Citibank SIBOR||2 years||1.1%|
|Citibank SORA||2 years||1.11%|
|DBS 3M SORA||2 years||0.14% + 0.8%|
|DBS FHR6||2 years||0.2% + 0.8% (capped at 1.4% for first year)|
|Maybank 3M SORA||1 year||0.14% + 0.9%|
|OCBC Eco-Care 1M SORA||2 years||0.11% + 0.98%|
|OCBC Mortgage Board Rates||Not specified||1.3%|
|OCBC 3M SIBOR||Not specified||0.16% + 0.3%|
|Standard Chartered 3M SORA||2 years||0.14% + 1.2%|
|UOB 3M SORA||2 years||0.14% + 1.2%|
Home Loan Rates for Buildings Under Construction (BUC)
Some people might think that it’s better to get a loan only after their homes have been constructed… but we disagree! Settling your home loan arrangements early can give you peace of mind, and (for some, more importantly) maybe even better interest rates.
As we mentioned earlier, BUC homeowners often look for home loans without a lock-in period, which frees them up to refinance and get a lower interest rate whenever their home is completed.
Here is our list of bank loans which have the lowest interest rates and no lock-in period.
|Bank||Lock-in period||First Year Rate|
|Citibank SIBOR||0 years||1.06%|
|Citibank SORA||0 years||1.23%|
|DBS FHR6||0 years||1.80%|
|HSBC SIBOR||0 years||1.02%|
|HSBC SORA||0 years||1.12%|
|OCBC SORA||0 years||1.10%|
|Standard Chartered Board Rate||0 years||1.10%|
|Standard Chartered SORA||0 years||0.98%|
Based on this list, Standard Chartered SORA is the best home loan, offering the lowest interest rate of 0.98%.
Still, these interest rates (which are correct as of Dec 2021) and spreads change all the time and may not be updated at the time you’re reading this article. We suggest that you check the bank websites to get their latest rates before signing up for a loan.
Will Interest Rates Go Up Further Next Year?
Knowing the future would come in handy for a lot of things. Striking TOTO, asking out the girl who will eventually become your wife, and of course, getting a home loan at the lowest possible rate. But we can’t always get what we want.
According to this Bloomberg article,Senior Minister and Chairman of the MonetaryAuthority of Singapore Tharman Shanmugaratnam said, “The risk of rising interest rates is a reminder that everyone should continue to exercise caution in their property purchase decisions,” as interest rates in Singapore are expected to rise alongside those in the USA.
He added, “buyers should assume that interest rates will rise, and be sure of their ability to service their loans before making long-term financial commitments.”
If these predictions are right, then it might be time to secure your home loan soon, before interest rates climb further.