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How to Pick Low Interest Home Loans in Singapore

Published 23 September 2024

At some point, most of us will need to take out a loan, especially when buying a home. Unless you’re among the fortunate few with enough cash to buy a six- or seven-figure property outright, a mortgage will be part of your journey.

In this article, we’ll guide you through everything you need to know about selecting a home loan—from interest rates and loan tenures to the latest rules like the Loan-to-Value (LTV) limit, Total Debt Servicing Ratio (TDSR), and Mortgage Servicing Ratio (MSR). By the end, you’ll have a clearer idea of how to pick a low-interest loan that suits your needs.

The Basics of a Home Loan

A mortgage is simply a loan that helps you afford a property. In return, you repay the bank or financial institution over a set period, with added interest. Your monthly payments cover two main components: the principal (the original amount borrowed) and the interest (the cost of borrowing).

The key to choosing the right home loan lies in understanding how much you’re borrowing, for how long, and at what cost.

Why Interest Rates Matter

When deciding on a mortgage, the interest rate is one of the most critical factors. Even a small difference can significantly impact the total amount you repay over the years. With the shifting interest rate environment in Singapore, understanding your options is crucial.

You’ll generally have two types of mortgage rates to choose from:

Fixed-rate mortgages: These offer stability, as the interest rate remains the same throughout the ‘lock-in’ period (usually 2 to 3 years). After this period, the loan typically switches to a floating rate.
Floating-rate mortgages: The interest rate fluctuates based on market conditions, often tied to benchmarks like the Singapore Overnight Rate Average (SORA).

If you’re risk-averse, a fixed-rate loan gives you the certainty of knowing exactly what you’ll pay each month. However, if you can handle some fluctuation and believe rates will drop, a floating-rate loan could potentially save you money.

How to Choose Mortgage Lender: A Quick Checklist

Finding the lowest rate is important, but knowing how to choose mortgage lender partners that fit your long-term goals is equally vital. Here is what to look for beyond the headline rate:

Repricing Costs: Does the lender offer free repricing options after your lock-in period?
Flexibility: Can you partially pre-pay without penalty if you suddenly come into extra cash?
Subsidies: Some lenders offer legal and valuation fee subsidies, which can lower initial cash outlay.
Service Standard: Will you have a dedicated banker to help with future repricing or just a general hotline?

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Loan-to-Value (LTV) Limit: How Much Can You Borrow?

Knowing how much you can borrow is key. In Singapore, this is determined by the LTV limit. This sets the maximum percentage of the property value that you can finance through a loan. The LTV limit depends on how many housing loans you are currently servicing.

Number of outstanding housing loans

LTV Limit (Standard)

Who does this apply to

0 (first home loan)

Up to 75%

First-time buyers (HDB or Private) & upgraders who have sold their previous home

Up to 45%

Investors buying a 2nd property while still paying for the 1st

2 or more

Up to 35%

Investors with multiple properties

Note: The LTV limit for HDB loans was lowered to 75% in August 2024 to align with bank loans. Previously, HDB buyers could borrow up to 80%.

If your loan tenure extends beyond age 65, or if the loan tenure exceeds 30 years (for HDB) or 35 years (for private properties), the LTV limits are significantly reduced:

0 Outstanding Loans: Limit drops to 55%
1 Outstanding Loan: Limit drops to 25%
2+ Outstanding Loans: Limit drops to 15%

For example, if you are buying a $500,000 HDB flat and this is your first property loan, you can borrow up to 75% ($375,000). The remaining amount will have to be paid in cash and/or CPF savings.

Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR)

When it comes to borrowing money, the Monetary Authority of Singapore (MAS) ensures you don’t overstretch yourself financially. This is where the TDSR and MSR come in.

TDSR (Total Debt Servicing Ratio): Applies to all property loans. Your total monthly debt obligations (mortgage, car loans, credit cards, etc.) cannot exceed 55% of your gross monthly income.
MSR (Mortgage Servicing Ratio): Applies only to HDB flats and Executive Condominiums (ECs). It caps your monthly home loan repayment at 30% of your gross monthly income.

These limits are designed to protect you from over-borrowing and ensure you can comfortably afford your mortgage, even if interest rates rise.

Short vs. Long Loan Tenure: What’s Better?

The tenure of your loan — how long you take to repay it — impacts your monthly cash flow and total interest costs. In Singapore, the maximum tenure for HDB flats is 30 years, and for private properties, it’s 35 years.

A shorter loan tenure means higher monthly instalments but less interest paid overall.
A longer loan tenure reduces your monthly payments but increases the total interest over time.

Imagine you take a $400,000 loan at an annual interest rate of 1.5%.

30-year tenure: You pay nearly $96,000 in total interest.
20-year tenure: Total interest drops to around $63,000, saving you over $30,000.

However, the 20-year option would cost you about $530 more per month. It’s about balancing monthly affordability with long-term savings.

Refinancing and Restructuring Your Loan

Your financial situation might change, and so can your mortgage. Many banks allow you to refinance (switch to a different bank) or reprice (switch packages within the same bank) after your lock-in period (typically 2 to 3 years).

Refinancing can secure a lower interest rate, potentially saving you thousands. However, always calculate if the savings outweigh the costs, such as legal fees or valuation charges.

Final Thoughts on Picking a Low-interest Home Loan

Choosing a home loan is a marathon, not a sprint. It’s about finding the right balance between a manageable monthly repayment and keeping interest costs low. Pay attention to the interest rate, LTV, TDSR, and MSR to find a solution that fits your lifestyle.

And remember, just because you want to be debt-free quickly doesn’t mean you should rush into a short-term tenure that strains your daily finances. Plan carefully so you can enjoy life’s other joys — like traveling or raising a family — while keeping your home loan under control.

If you’re ready to take the next step, talk to a mortgage advisor to help you find the best low-interest home loan in Singapore tailored to your needs.

Get Financial Planning Advice from Professionals

Paying for a home shouldn’t feel like rocket science. That’s why Ohmyhome provides unbiased mortgage advisory. We’ll give you a bird’s eye view of all the loans available in the market, and conduct holistic assessments to determine which ones are the most affordable and financially savvy for new home buyers. Drop us a call or message on WhatsApp to get professional advice when investing in, renting, buying, or selling a property.