Purchasing a home is a major, sometimes even life-changing, decision. But you cannot enjoy the full extent of this exciting new phase in your life until you have tackled the associated bureaucracy.
Learning how to calculate housing loan is an essential step you take in that process.
The good news is that you are on the right page. We will help you learn how to assess the housing loan amount you need based on several variables, like the best housing calculators in Singapore do.
We will also explain the most common terms you will come across during your home ownership journey, explain eligibility conditions, and give plenty of examples.
Keep reading to find out all you need to know.
Loan Amount And Tenure
The question of how to calculate housing loan depends on several factors – mainly, your loan amount and tenure.
First, younger people usually have access to longer tenures. However, the maximum term you can get is:
- 30 years for HDB flats
- 35 years for private properties
Warning: If your tenure is too long, the maximum loan amount you can get decreases.
For example, the maximum sum you can borrow can be reduced to just 55% of the property’s retail price if your tenure is above:
- 25 years for HDB apartments
- 30 years for private properties
Therefore, you’d need an advance downpayment covering 45% of your property’s cost.
That brings us to the next point.
Calculating The Value Of Your Property
A housing loan calculator considers factors such as the ones below when rendering your property’s value:
A central location near business buildings and shopping malls is considered more valuable than a suburban positioning. For example, Bukit Timah, the central area and Queenstown are three of the most expensive sites in Singapore, while Jurong West, Sembawang, and Woodlands are the most affordable.
However, notice that even these more affordable neighbourhoods have plenty of amenities such as schools, malls, and MRT stations.
Type Of Property
Executive condos and five-room apartments are more expensive than flats. Also, houses cost more than apartments, especially villas in classy locations.
Home loan calculators in Singapore will help you get pretty precise ballparks when you are considering different types of properties.
Each square foot tips the price scale a bit higher. So a two-room apartment reaching 50 sq m will cost more than another two-room flat in the same area with a floor area of just 30 sq m.
Remember: Location can take precedence over the floor area.
If the second apartment is in Bukit Timah and the first is in Woodlands, chances are the Woodlands flat is cheaper, even if it’s almost twice as large.
Nearby amenities can make a difference, so properties near the central region of Singapore are more expensive. But you can notice amenities-related differences even within the same neighbourhood.
Take two flats in Jurong West, for example.
Let’s say they are the same property type and size. Even so, a loan calculator in Singapore will show you that the one nearer a well-known university costs slightly more than the one further away from this particular spot.
Getting a modern, well-furnished property can set you back a few (tens of) thousand dollars. That’s understandable, considering that furniture in Singapore costs a small fortune in itself.
On the other hand, you would have to have similar tastes to the previous owners to commit to keeping their used furniture.
Pro tip: Use a mortgage calculator to see how much that property would cost with and without the furniture.
That way, you can decide whether to take it fully furnished or buy your own bean bags to get you started.
How Much Mortgage Can You Afford?
The amount of mortgage you can afford depends on two main variables:
- Your annual income
- Your previous debt
However, financial advisors recommend a maximum mortgage of not more than 2.5 times your yearly earnings.
Let’s say your gross salary is $7,500 per month; in this case, your annual income would be $90,000, and your mortgage cap would be $225,000.
Remember: This recommendation is not a rule. A mortgage loan calculator in Singapore will give you a more precise answer for your mortgage. It will also take into account your loan-to-income ratio.
We will discuss this in the section below.
How To Calculate Your Mortgage Payment
To calculate your mortgage payment, you will need to consider the loan-to-income ratio. This number represents the ratio between your total loan installments over your income.
The premise is that people need some of their income for survival needs.
You cannot commit your entire earnings – or more than that – to your monthly installments.
So the Singapore government has decided to enforce two indicators to limit the mortgage amount:
- Total Debt Servicing Ratio (TDSR): The TDSR represents the ratio of all your debt over your income, including car loans, education loans, emergency loans, etc. The TDSR in Singapore is capped at 55%. Therefore, you cannot use more than 55% of your monthly earnings to pay your loan installments.
- Mortgage Servicing Ratio (MSR): The MSR represents the totality of your property-related loans over your income and is capped at 30%. That means you cannot commit more than 30% of your monthly earnings towards property loans. Luckily, the MSR is enforced only for HDB flats and not private properties.
- Pick a bank HDB loan calculator if you are buying an HDB flat. That way, you can be sure the calculator includes the MSR in its calculations to render a correct value.
- You can use your CPF Ordinary Account (OA) to pay your mortgage installments. Use a CPF housing loan calculator to see if you have enough money in this account after inputting data such as the property value, loan tenure, and interest rate.
What Is The Maximum Loan You Can Get?
A home loan calculator in Singapore will tell you the maximum loan you can get. But if you want to assess that yourself, you must understand the loan-to-value (LTV) ratio.
The LTV ratio represents the amount of loan you can get compared to the value or price of your desired property.
Note: Sometimes, the price differs from the value assessed by the bank or HDB. That difference may be particularly steep for properties sold by their previous owners compared to new HDB residences.
Remember: The LTV is calculated based on the lowest amount between the property’s price and its market value.
So how much can you get?
- A bank loan will cover a maximum of 75% of your desired property’s price or value. The advance downpayment comprises 25% of that property’s cost, of which 5% of the property’s worth must be in cash. The remaining 20% of the property’s price can be paid using a mix of your CPF OA, cash, or either one.
- An HDB concessionary loan covers a maximum of 80% of your desired property’s price or value as of 30 Sep 2022. In this case, you can pay the entire 20% downpayment using your CPF OA and cash in any proportion you want.
Let’s take an example.
You decide to purchase a used HDB flat that costs $420,000 but is valued at $400,000. This $400,000 is the basis for the eligible loan amount.
A home loan calculator will quote the following values:
- HDB loan: $320,000 maximum loan amount; $80,000 minimum downpayment using cash and/or CPF OA. The $20,000 difference between the retail price and assessed value must be paid in cash. This is known as the Cash Over Valuation (COV).
- Bank loan: $300,000 maximum loan amount; $100,000 minimum downpayment, out of which at least $20,000 (5% out of $400,000) should be in cash. The COV, or the $20,000 difference between the retail price and assessed value, must be paid for in cash.
Remember: These are the maximum loan amounts you can theoretically qualify for. However, factors such as your age, loan tenure, property’s remaining lease, and credit score may lower the loan amount you are eligible for.
That’s why we advised you to use mortgage loan calculators throughout this article.
Weigh Your Options Carefully
If you want to buy a new property, you need to understand how to calculate housing loan.
That value, though, depends on a slew of factors we have analysed in this article. From your income and your credit score to the property’s furniture, location, and amenities, there are many variables to consider.
A HDB loan gives you access to more money and limits the amount you need to fork out in cash, while a bank loan can help you become debt-free faster – thanks to that larger initial downpayment.
Luckily, any good home loan calculator in Singapore will help you input those variables quickly.
There is only one thing left to consider.
You must pay the COV in cash. If that is too much of a financial burden, you can rely on Lending Bee.
With our extensive experience in the market and customer-oriented mindset, we have devised comprehensive loan packages that can fit all your needs.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.