Glossary of Singapore Mortgage Loan Terms & Jargon

The process of paying off a debt (often from a loan or mortgage) over time through regular payments. The monthly payment is broken down into interest payments and the remaining amount is for principal repayments. In the early years, payments consist largely of interest; as time goes on, principal repayments increases. At the end of the loan tenure, the entire debt will be repaid.

Cancellation Fees

The amount that banks charge, usually a percentage of the loan amount, if you were to cancel your housing loan after you have accepted the Letter of Offer but before the housing loan is disbursed.

Cashback Housing Loan

The lender refunds a percentage of the housing loan the cashback and you are usually tied by way of an early redemption penalty for a set number of years.

Combo Housing Loan

A combo or hybrid housing loan can be sub-divided into different parts. Each part can be treated as a separate housing loan so you can choose a package for each division. In other words, your loan, if you were to sub-divide it into two parts, can consist of a floating rate component and a fixed rate component.

Claw-back Period

If you are to fully redeem your mortgage within the claw-back period, the lender will reclaim the cost of freebies they gave to you when you sign with them. These would usually be the legal subsidy and may include valuation fees, fire insurance premiums et cetera.

Certificate of Statutory Completion (CSC)

The Commissioner of Building Control will issue the Certificate of Statutory Completion to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or Temporary Occupatancy Permit(TOP) is granted. The requirements for a CSC is more rigorous than a TOP and is compulsory, unlike a TOP.

Fixed Rate Housing Loan

Packages offering a fixed interest rate for a set period, during which there will almost certainly be early repayment charges. You are protected from interest rate increases and allows for easy monthly budgeting. However, if rates were to fall during the fixed interest period, you would be left paying a relatively high rate.

Floating/Variable Rate Housing Loan

The interest rate can rise or fall throughout the tenure of the loan. Lenders usually give at least one months notice when adjustments are made to the interest rate. Most lenders allow partial prepayments for this type of loan, making this a good package if you intend to repay a significant portion of your housing loan in the initial few years.

Full Redemption/Repayment Penalty

The amount that banks charge, usually a percentage of the loan amount, if you were to fully repay your housing loan within a specified period of time.

In-principle Approval/Pre-approval

Loan approval from a bank based on the credit standing of borrower(s). Approval is normally valid for around a month and subject to the property valuation being higher or equal to the property purchase price.

Interest-offset Accounts/Schemes

Some deals come with an account whereby cash deposited into this account will offset the interest that you pay on your housing loan quantum. For every dollar that you deposit into the account, the interest may be offset fully or by a fraction. For example, your deal may offer you an account that offsets 2/3 of your interest rate for cash that you deposit into it. When you deposit S$100,000 into the account, assuming your interest rate is 3% and loan quantum is S$500,000 at the time of deposit, you will be paying interest of 3% for S$400,000 and 1% (1 - 2/3 of 3%) for S$100,000. This type of account is useful when you have access to substantial liquid funds but have no intention of using the funds to reduce your loan quantum.

Interest-only Housing Loan

Monthly payments consist entirely of the interest due on your loan so that the balance you owe is not reduced during the term.

Letter of Offer (LO)

A contract between the borrower(s) and the bank stating the terms of the housing loan package.

Loan Quantum

The loan quantum or principal is the amount of money that you borrow.

Loan Tenure

The period of time that you will take to fully repay your loan.

Loan to Value (LTV)

A percentage figure indicating the size of the housing loan on a property in relation to its value. Thus, a house worth S$500 000 with a mortgage of S$400 000 would have a loan to value of 80%. Most banks and financial institutions have better housing loan deals for LTV 80% and below. The maximum LTV that lenders can legally go to in Singapore is 90%.

Lock-in Period

The number of years that you are tied to your lender. If you fully redeem your loan within this period, there will be a full redemption penalty that is equal to a percentage of your loan quantum. Lenders may also charge a penalty for making partial payments within this period.

Partial Redemption Penalty

The amount that mortgage lenders charge, usually a percentage of the loan amount, if you were to prepay your housing loan within a specified period of time.

Payment Holiday Housing Loan

A relatively new type of mortgage in the Singapore market. You take a break towards paying of your interest or monthly instalment at certain periods during your loan tenure.

Prepayment

Payments that you make in addition to the monthly instalments.

Refinancing

Switching from one housing loan package to another, usually to get better rates.

Repricing

Switching from one housing loan package to another deal with the same lender.

Singapore Interbank Offered Rate (SIBOR)

Singapore Interbank Offered Rate is fixed by the Association of Banks in Singapore. It represents the rate that banks and financial institutions lend unsecured funds to each other in Singapore. Local housing loan interest rates track movements in the Sibor.

Singapore Swap Offer Rate (SOR)

Swap offer rate is fixed by the Association of Banks in Singapore. It represents the average cost of funds used by banks in Singapore for commercial lending.

Temporary Occupancy Permit (TOP)

The Commissioner of Building Control will issue the Temporary Occupation Permit to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or TOP is granted. A TOP, unlike a CSC, is not compulsory, but is usually obtained before a CSC as requirements for a TOP is less stringent.