Home loan interest rates in Singapore: how to read an offer

Home loan interest rates in Singapore are only one line of a bank’s offer. Before comparing rates, read five things: whether the rate is pegged to SORA or fixed, what a fixed rate turns into afterwards, the lock-in and its penalty, the fees you pay in cash, and whether the instalment still fits your total debt servicing ratio (TDSR) if rates rise.

This guide quotes no bank’s current rate. CPF says bank loan rates are subject to market fluctuations, so take any rate from the bank’s own letter and write down its date. The S$ figures below are illustrative arithmetic, not offers, and this is general information, not financial advice.

What is the difference between a SORA-pegged and a fixed-rate package?

CPF Board describes bank housing loans as offering floating interest rates pegged to a benchmark such as the Singapore Overnight Rate Average (SORA), or fixed rates for a pre-determined period, usually one to three years, before reverting to floating. It adds that these rates are subject to market fluctuations: some homeowners secured rates below 1.5% a year in 2020 and 2021, while some borrowers saw rates above 4% a year in 2022 and 2023. The page is written for HDB flat buyers weighing an HDB loan against a bank loan; we use only its description of bank loans.

• SORA-pegged: the rate follows a benchmark, so the instalment can change when the benchmark changes.
• Fixed, then floating: the rate is fixed for a set period, then reverts to a floating rate. Our inference: the reversion rate matters as much as the fixed rate, because it applies to the rest of the loan.

Neither is better by default. CPF poses the test as a question: if your repayments increase by a few hundred dollars a month, would your finances be able to absorb it? The arithmetic below puts numbers on that.

How do I read the rest of the offer letter?

This checklist is ours. Where a line cites CPF, that is what CPF’s pages state; the questions are our suggestions. Ask the bank to answer every line in writing:

• Rate basis: the benchmark, any margin above it and the reset frequency, or the fixed rate and the date it ends.
• Reversion rate: what the rate becomes after the fixed period.
• Lock-in period: CPF says most bank loans have one, typically around one to three years.
• Penalty: CPF says paying off or refinancing inside the lock-in could cost around 1.5% of the outstanding loan, although terms vary by bank and package. Ask for the exact percentage and what counts as early repayment.
• Switching costs: CPF mentions legal fees, valuation fees and possible clawbacks of subsidies or rebates from the original bank. Ask who pays each and how much.
• Repricing: CPF describes repricing with the same bank, and says refinancing with a different bank is usually possible only after the lock-in. Ask what repricing the bank offers and when.
• Drawdown: if the home is still under construction, how the loan is drawn, whether a fixed period starts at the first drawdown or on a set date, and the expected instalment at each stage. Our payment schedule guide gathers what URA and CPF say about the payments, but its stage percentages are unverified, so ask the bank for the amounts.
• TDSR test: whether the bank tests your TDSR at the offer rate or at another rate, and what that rate is. The CPF pages we read do not say which rate banks use.
• Cash and CPF: which costs come from CPF and which from cash. CPF lists Ordinary Account savings as usable for the down payment and housing loan, and for stamp and legal fees, but IRAS says using CPF funds to pay stamp duty is subject to the terms and conditions of the private property and public housing schemes, so ask CPF and the bank which duties your OA can cover. Our CPF guide shows the limits and our joint purchase guide covers ABSD.

What does a rate change do to a S$1.2 million loan?

Take an illustrative S$1.2 million loan over 30 years with equal monthly instalments, the whole loan drawn from day one. The amount and tenure are chosen only to make the arithmetic easy: banks set the maximum loan and tenure for each buyer, and CPF’s home-buying guide, which is aimed at HDB flat buyers, says the loan-to-value limit depends on the number of outstanding home loans and the loan tenure. CPF’s page on what to consider lists a bank loan’s maximum as “Up to 75% of purchase price, subject to terms and conditions” without naming a property type or the conditions, and its down-payment FAQ lists a minimum 5% cash down payment for a private property and points to MAS’s website. We could not read MAS’s rules, so we state no limit of our own.

The instalment formula is M = P × r ÷ (1 − (1 + r)^−n), where P is the loan, r is the annual rate divided by 12 and n is the number of monthly instalments (360). At 2.5%: r = 0.025 ÷ 12 = 0.0020833 and (1 + r)^−360 = 0.47274, so M = 1,200,000 × 0.0020833 ÷ 0.52726 = S$4,741. At four invented rates:

• 2.5% a year: S$4,741
• 3.5% a year: S$5,389
• 4.5% a year: S$6,080
• 5.5% a year: S$6,813

Each extra percentage point adds between S$647 and S$733 a month. These are not forecasts; they show how far a repricing can move a household budget.

Now a fixed-then-floating example. Suppose, for illustration, the loan is fixed at 2.5% for 24 months. The balance after 24 instalments is about S$1,144,896. If the rate then moves to 3.5% for the remaining 336 months (28 years), the instalment becomes about S$5,350, which is S$609 more than the S$4,741 paid in the fixed period. At 4.5% it becomes about S$5,999, which is S$1,258 more. A household should be able to say now whether it could absorb that second step.

Will the loan pass the TDSR test, and is passing enough?

CPF explains that a borrower’s TDSR is the portion of gross monthly income that goes towards repaying monthly debt obligations, including the loan being applied for, and that it should be less than or equal to 55%. Its example: on a combined monthly income of S$8,000, up to S$4,400 (55%) can go to total monthly debt repayment, so with a S$1,500 car loan the home instalment is capped at up to S$2,900.

Apply the same arithmetic to an illustrative household with S$20,000 gross monthly income and a S$1,200 car loan. The 55% limit is S$11,000, which leaves S$9,800 for the home loan, so all four instalments above fall under it. This is the simple version; the checklist asks which rate and assumptions your bank actually uses.

CPF also says that, to be prudent, you should keep your TDSR and monthly housing instalment within 55% and 25% of your gross monthly income respectively. On S$20,000, 25% is S$5,000: the S$4,741 instalment sits inside it, the S$5,389 one does not. Our inference: passing a bank’s test and staying inside CPF’s prudence guide are different things, and the gap is a household decision to make before paying any deposit.

CPF describes a separate mortgage servicing ratio (MSR), capped at 30% of gross monthly income, which it says applies only to housing loans for an HDB flat or for an executive condominium whose minimum occupation period has not expired. On that wording it does not apply to a loan for a private condominium; confirm with the bank.

What does switching cost inside the lock-in?

Use a different illustrative loan: S$1.2 million at 3.5% from the start, over 30 years, with a S$5,389 instalment. After 24 instalments the balance is about S$1,153,122. CPF gives around 1.5% of the outstanding loan as a possible penalty for paying off or refinancing within the lock-in, so on this balance, about S$17,297.

If refinancing cut the rate to 3.0% on that balance over the remaining 28 years, the instalment would fall to about S$5,077, which is S$312 a month less. The penalty alone would take about 55 months to recover, before the legal and valuation fees and any clawbacks that CPF also mentions. Our inference: the sum shows why the lock-in terms can matter as much as the rate, and why the date the lock-in ends is worth writing down.

When should I ask a bank for an offer?

Early. URA says buyers should enquire with their bank on eligibility for bank financing as early as possible, preferably before paying the upfront deposit or committing to the purchase. Our guides to preparing for mortgage pre-approval and going to a broker or a bank direct cover how to gather offers; this one is about reading them. Our suggestion: collect written offers for the same loan amount and tenure from at least two banks before paying any deposit, each dated and with the checklist answered. Put the stamp duty from our stamp duty guide in the same cash-flow plan, and keep the offers in your research file. Unfamiliar terms are defined in our new launch glossary; more on the research sequence is under Start your research.

Common questions