Getting a Mortgage for Residents in Singapore - A Guide
Many permanent residents in Singapore think about purchasing a property in Singapore either as a home, or as an investment. There are, however, restrictions on what types of property many foreign permanent residents can buy.
If you find a property you both like and can buy, securing a mortgage is often the crucial next step in making your dreams a reality. As a resident in Singapore, there are several options for obtaining a mortgage, each with its own set of requirements and conditions.
In this article, you will learn about the different types of mortgages available, how to apply for them, and what to consider when making your decision. Whether you are a first-time buyer or an experienced property investor, this guide will provide you with the information you need to make the best choice for your situation.
Should I get a mortgage from a bank or a broker?
While you could start talking to Singaporean banks directly about a mortgage, it would be time consuming. To get the best deal, however, it's recommended to talk directly with a financial advisor or broker who can compare all the current rates based on your circumstance and preferences. Brokers can also sometimes access mortgage rates and products that aren’t available to individuals directly.
What types of mortgages are available in Singapore?
When considering a mortgage in Singapore, similar to many other countries, borrowers have two options: fixed rate and variable rate.
Fixed rates are normally for a set duration, such as 3 or 5 years.
For those looking for a variable rate mortgage in Singapore, historically, options included loans that track the SIBOR (Singapore Interbank Borrowing Offer Rate) or SOR (Swap Offer Rate). SIBOR is determined by the exchange of money between banks and is less impacted by foreign exchange fluctuations compared to SOR which is based on the exchange rate of SGD to USD.
Note however that new SOR based loans have been phased out and SIBOR will be discontinued by 2024. Both are being replaced by SORA (Singapore Overnight Rate Average). SORA is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8am and 6.15pm.
Another option is a bank-determined board rate mortgage. Fixed deposit-pegged mortgages have also become a popular choice, offering stability and transparency as they follow a bank's fixed deposit interest rates, but the interest rate is determined by the bank and not the market.
Other considerations getting a mortgage in Singapore
The Loan to Valuation (LTV) ratio is an important factor, as banks generally offer loans capped at a certain percentage of the purchase price. The rest of the sum must be covered through cash or a Central Provident Fund (CPF) account.
Another factor to consider is the Total Debt Servicing Ratio (TDSR), which limits monthly debt obligations to 60% of a salaried individual's income or 70% for self-employed/commission-based workers. This takes into account debts from sources like credit card bills, car loans, and property loans. If all criteria are met, one can start searching for a mortgage package, with the simplest choice being a fixed rate mortgage. In this option, the interest rate stays constant for a predefined period, usually 1-3 years. However, the loan cannot be partially or fully redeemed without incurring a penalty, which ranges from 1-1.5% of the original or outstanding loan, depending on the terms.
For those with cash savings, a deposit matching interest offset mortgage may be a good idea. This type of mortgage lets you open a savings account and a mortgage account at the same time. The high interest earned on the savings account can offset up to 70% of the mortgage interest, significantly reducing the overall interest paid to the bank, but only if you keep the cash in the same bank offering the mortgage. One example of this is Standard Chartered's MortgageOne.
Another option to consider is an interest-only mortgage, where only the interest is payable each month, with the main loan repaid when you sell the property. This can be a good choice for those just starting their careers, although it results in a more expensive loan overall, and is normally only available for commercial and industrial properties in Singapore.
What are the legal requirements to get a mortgage in Singapore?
Purchasing property in Singapore is limited to specific types of properties approved by the Singapore Land Authority for non-citizens, even if they’re permanent residents. An additional stamp duty of 15% is imposed on residential properties, including first-time purchases. This rule is waived for nationals of the United States, Switzerland, Liechtenstein, Norway, and Iceland under the provisions of Free Trade Agreements. However, the mortgage application process for foreign buyers is the same as for local residents, once the property has been approved for purchase.
How to obtain a mortgage in Singapore
Before applying for your loan, you’ll have to gather the following paperwork:
· Passport or Identity Card (for Permanent Residents)
Proof of Income:
· Your 3 most recent payslips (or bank account statements for self-employed applicants)
· Your 2 most recent annual income tax assessments
· Yout latest CPF statement showing account balance and contributions (if applicable)
For properties already confirmed for purchase:
· The Signed Option to Purchase (OTP) or Sales and Purchase Agreement (S&P)
· The Official Valuation Report
· The HDB Confirmation Page (printed from HDB online portal)
Here is the process for obtaining a mortgage in Singapore once you’ve found a property and your advisor has identified the right mortgage for you:
Step 1: Obtain an In-Principle Approval (IPA):
· Provide the required documents (those listed above) to your mortgage broker.
· Receive IPA from the lender, which is a formal confirmation of the maximum amount they will loan you.
Step 2: Purchase the property:
· Sign the Sales and Purchase Agreement (S&P) for your new property.
· Engage a conveyancing lawyer and provide all required documents (your financial advisor will be able to recommend one for you).
· The lawyer will coordinate with the bank, CPF Board, and seller's bank.
Step 3: Completion of Transaction:
· When ready, transfer the deposit to your lawyer, while your advisor will coordinate with the mortgage lender to do the same.
Real estate purchase fees
There can be quite a few fees associated with purchasing real estate in Singapore. Your financial advisor will guide you through the process, but you may be required to pay:
· Option To Purchase (OTP) fee for purchasing a private property: Usually 1% of the purchase price
· OTP fee for purchasing an HDB flat: Between S$1 to S$1,000
· Option exercise fee (includes fee paid for OTP) for private property: Usually 4% of the purchase price
· Option exercise fee (includes fee paid for OTP) for HDB flat: Maximum S$5,000
· Conveyancing fees for legal services vary but generally range between S$2,000 to S$4,000
· Buyer’s Stamp duty:
<1 million: 3% - $5,400
1 million to <1.5 million: 4% - $15,400
1.5 million to <3 million: 5% - $30,400
3 million and up: 6% - $60,400
· Additional Buyer’s Stamp Duty (ABSD) only for residential properties:
- Singapore PR purchasing 1st property - 5%
- Singapore PR purchasing 2nd or more property - 25%
- Foreigner purchasing any property - 30%
· Valuation fee: Between S$300 to S$700 depending on property type
· HDB administrative fees: S$10
· Resale application fee for HDB flats: S$40 to S$80
· Agent Fees: 1-2% of purchase price
· Fire Insurance: S$1.80 - S$4
In conclusion, residents in Singapore have a range of mortgage options including fixed rate, SIBOR/SOR, board rate, deposit-pegged, deposit matching interest offset and interest-only. Also be aware of the limitations for foreigners buying certain property types, the process, and the fees involved. Your expat financial advisor will walk you through the process and answer any questions you may have though.
If you have any questions about obtaining a mortgage in Singapore, don’t hesitate to contact us.