Private residential properties mortgage loans

What are they?

Private residential properties mortgage loans typically refers to loans offered to finance the purchase of private residential properties. Typically, the same properties purchased are used as collateral to secure such loans.

In Singapore, financial institutions are permitted to lend up to 80% of the value of a private residential property. Of the balance, 10% must be paid in cash with the other 10% either in cash or CPF. A valuation of the property-in-question by an independent surveyor is normally required.

In addition, financial institutions also require that monthly repayments on all loans including housing loans should not be more than 40% of the borrower’s monthly gross income.

Housing loans comes in different forms, some with fixed rates while others are based on floating rates that are pegged to the bank's board rates.

How do they work?

Interest calculations: Banks normally adopt one of two methods for calculating interest.

Monthly Rest: Interest is computed based on the loan balance on a specific date each month. So there is no advantage to be gained if a borrower repays an instalment before the prescribed date.

Daily Rest: Interest is calculated based on daily loan balances. This means that if payment is made earlier, the outstanding balance in the account is reduced which in turn results in less interest charged.

Bridging loans: Most banks provide bridging loans to help borrowers meet temporary financing needs arising from the sale of an existing property and buying a new property. This helps the borrower pay for the new property while waiting to receive payment from the sale of the existing property. To qualify for a bridging loan, banks normally require assurances that the borrower has successfully sold his property and is awaiting the receipt of proceeds from the sale. Banks will also usually require at least a lodgement of a caveat on the private residential property to be purchased. The interest on bridging loans is commonly calculated daily and payable at the end of each month. A borrower is usually given up to a maximum of six months to complete the sale and repay the bridging loan in full.

Default: Housing loans are in default when payments there under are outstanding beyond the relevant due date(s). Banks will step in to attempt to bring repayments back in line and in very serious cases they will initiate the forced sale of the property.

How do I find the best deal?

When shopping for the right housing loan, you may wish to keep the following in mind:


Match duration: Find out what is the maximum loan period that you can secure.
Generally maximum loan period differs among banks and ranges between 30 to 35 years, or dependant on when the borrower turns 65 years of age. In the case of leasehold properties, it is important that you also check the remaining lease on the property.


Monthly payment projections: Compare the monthly repayment patterns of different interest rate from various providers to decide which of these better match your requirements.


Interest rate comparison: Find out if the mortgage is on fixed or floating rate loans and in the case of fixed rates how long these rates are fixed for.


Fees: Find out if the bank charges a fee for processing such loans. These typically include fees for legal, valuation or insurance. Sometimes bank offers free fire insurance and free valuation on the property. Some banks even provide legal subsidies.


Penalties: Find out if there are any penalty fees for partial or full redemption of the loan.