How Is Housing Loan Interest Calculated In Singapore?
Finance,

Home loans are ideal when looking for funding to facilitate property acquisition.
You could be eligible for such funds based on a few factors, such as substantial proof of income and excellent credit.
Did you know that mortgage interest rates could be why you choose to take a housing loan or seek alternative funding?
Your concern could be how is housing loan interest calculated in Singapore and why mortgage rates tend to vary across lending platforms.
Let’s look into this for better decision-making regarding a housing loan.
How Is Housing Loan Interest Calculated?
Interest rates on mortgage loans can be frustrating because you could pay more than you thought. But knowing this beforehand is critical for better planning.
Banks and other money lenders must explain to you loan interest rates, payment schedules, loan tenures, and other terms service.
Since most home loans incur interest and must be repaid monthly, it will be best to understand how money lenders calculate and set housing loan interest rates in Singapore.
So, how is housing loan interest calculated by money lenders and what you should expect?
Loan providers follow the reducing balance method (amortisation principle) when deciding interest rates.
Usually, a lender breaks down the principal amount over the loan tenure to come up with interest rates and manageable monthly installments.
Ideally, mortgage interest rates are calculated against the outstanding balance and loan tenure, allowing you to make reduced repayments over time.
You will pay part of the principal and interest when making monthly repayments.
It will be best to find out how is housing loan interest calculated by a loan provider to know how much you will be paying.
How Much Do You Actually Pay?
Individual money lenders determine the interest rates you will incur when taking mortgage loans.
This means that banks will charge a lower interest rate compared to other money lenders.
The law stipulates that loan providers can only charge up to 4% monthly interest rates on housing loans.
The total interest is subject to the loan amount and tenure – you can use a loan calculator to determine how much you will pay at the end of the loan tenure.
However, HDB loans are more straightforward, and you can easily determine the total interest payable.
Monthly interest = loan balance X R/12
Besides, the type of interest rates (fixed or floating) would determine the total repayable amount.
To calculate how much you will pay on a mortgage loan, factor in the following:
- Principal amount – how much are you borrowing?
- What’s the upfront cost? Think of the downpayment – paying more of the purchase price reduces the total costs.
- Interest rates as provided by the lender.
- Processing fees (administrative fees) are paid upfront during loan approval.
- Amendment charges are applicable if you make changes to the original loan application.
- Ongoing costs, for example, property taxes, maintenance costs, and utilities.
- Cancelation fees can only be considered if you disagree with loan terms after consenting.
- Default fees cover the penalties for missing payments.
- Late payment fees – lenders can charge you for repayments made after the agreed due dates.
- Early repayment fees – some loan providers penalise you for repaying your loans much earlier.
You can use this formula to estimate how much you will pay after a loan term elapses.
Total repayment amount = principal amount + total interest + additional fees
How is Housing Loan Interest Calculated And What Factors Affect Mortgage Rates?
Housing loan interest rates in Singapore keep fluctuating, resulting in higher or lower repayments.
Depending on a few things a lender considers when calculating interest rates, the difference could be manageable or unfavourable.
Familiarising yourself with these factors could help in lowering mortgage rates – consider the following when estimating mortgage rates:
Your Credit Score
Your creditworthiness is something a money lender will assess when calculating mortgage rates.
The credit score determines your reliability and chances of repaying a loan within its tenure.
Your financial status and obligations, how you use credit cards, how you manage previous debts, and if you have outstanding loans impact your credit rating.
Higher credit scores attract lower) mortgage interest rates, whereas low ones result in unfavourable interest rates.
You can attract favourable housing loan interest rates through your credit score by:
- Ensure your credit report is updated and accurate.
- Don’t make multiple housing loan inquiries within the same period.
- Pay existing loans within the required tenure – consolidating multiple debts could be inevitable.
- Opt for short-term loans and manage repayments promptly.
- Be careful and diligent when using credit cards – your spending activities should be meaningful.
- Avoid defaulting on loans and build a good loan management history.
- Minimise your debt-to-income ratio.
When contemplating mortgage loans, ensure you get an updated credit report from the Credit Bureau of Singapore.
Property’s Value
A mortgage’s market price is significant when determining rates. For example, a property near the CBD or a newly built one is considered valuable, unlike old ones in rural areas.
A highly-value property will attract lower interest rates than an old one in remote areas.
Loan Amount
If you are making a larger downpayment, you need lower loan amounts.
Money lenders pay attention to net interest margins and prefer providing a large loan, thus lower loan rates.
Small loan amounts equate to lower housing loan interest rates, whereas bigger loans attract high interest rates.
Loan Tenure
The longer it takes to repay a mortgage, the higher the interest rates.
Short-term loans have favourable interest rates because you pay a large amount of the principal, reducing the chances of defaulting.
Consider monthly payments and ensure you can manage repayments when choosing a loan tenure – it should be budget-friendly.
Interest Type
Mortgage rates are categorised into two; fixed and floating rates. The former means that your repayments remain unchanged throughout the loan tenure.
In contrast, floating mortgage rates fluctuate based on a few variables, such as inflation, economic status, and market value.
Choosing a floating-interest mortgage rate is ideal if you have a short loan tenure.
However, the economy’s unpredictability and market value make fixed interest rates better for lengthy loan tenures.
Fixed mortgage rates are suitable if your loan tenure exceeds 10 years.
Loan Repayment Plan
How often will you be repaying the loan? Frequent loan repayments mean you will reduce the outstanding principal amount faster, resulting in lower interest rates at the end of the loan tenure.
Opt for compounding interest and frequent loan payments to minimize the total interest incurred on your mortgage loan.
Monthly Installments
The repayment amount significantly impacts loan interest rates. Frequent yet larger repayment loans result in lower interest rates.
Increase monthly repayments when clearing the principal amount to lower the debt and total interest.
Total Debt Servicing Ratio (TDSR)
Banks and other money lenders in Singapore have requirements when it comes to TDSR.
Ideally, a lender will assess your ability to repay debts when calculating interest rates to avoid providing overwhelming loans.
Since the TDSR limits the amount you can borrow, the interest rate will be higher or lower based on the score.
Remember, your monthly repayments cannot exceed 55% of your income. Since mortgage rates keep fluctuating, discuss with your loan provider for better decision-making.
Opt for lengthier loan tenures or make a large downpayment if you cannot meet the TDSR requirements.
How Much Housing Loan Can I Get?
Loan amounts vary, depending on a few things, such as:
- Your income – High-income earners qualify for more.
- Your age: you qualify for lower loan amounts if you are 65+ at the end of the loan tenure – you may get up to 55% funding.
- Existing financial commitments, such as servicing other loans, could be a factor when determining loan amounts.
- Choice of loan provider – a bank may give up to 75% funding
You can determine how much you are eligible for using a mortgage loan calculator in Singapore.
However, the law allows you to get up to 2.5 times your annual gross income. For example, you can get up to $125,000 if your annual income (gross) is $50,000.
Lenders will consider additional factors when determining loan amounts.
Learn How is Housing Loan Interest Calculated And Get Affordable Loans
Mortgage interest rates affect loan affordability, but knowing how money lenders like BST Credit calculate interest rates can help map out a favourable plan.
Are you on the verge of buying property but unsure where to get financing at affordable rates? BST Credit offers tailor-made financial services after considering your financial status.
You can calculate how much you will pay using our loan calculator – apply for a loan today and fulfill your desire to own a home today.
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