Making sense of home loan jargon
Buying your dream home and confused over the multitude of terms? Ready yourself with our comprehensive list of property-related jargon, that will help you make sense of it all.
Interest amount that has been incurred but not yet paid.
The gradual reduction in the principal amount owed on a debt.
During the first few years of servicing a loan, most of each payment is applied toward the interest owed. During the final years of loan, payment amounts are applied almost exclusively to the remaining principal, unless there has been negative amortisation.
Annual Value (AV)
The estimated annual rent of a property, excluding the rent for furniture, fittings and service charge. The Income Revenue Authority of Singapore (IRAS) determines the AV of a property by analysing rents of similar properties.
An indication by the bank of the loan amount a prospective purchaser is eligible for.
However, an AIP does not equate to a formal approval. The purchaser must still submit a Home Loan application, and the bank's approval is dependent upon various factors, including property valuation, credit checks and other criteria. It is advisable to know your AIP amount before committing to a property.
A secured short-term loan facility that allows the customer to access cash by pledging his property to the bank. There are no restrictions on how the funds may be used.
Additional Buyer's Stamp Duty (ABSD)
A tax measure in Singapore, introduced in 2011, to cool the property market. It applies to buyers of second, third or subsequent properties in Singapore.
A bank's benchmark interest rate, used to determine the interest rate of a loan. Different banks have different Board Rates.
The borrower is the person taking up a home loan from the bank.
Short-term funding option commonly used by property buyers in-between selling a property and buying another.
For example, if you've sold your existing property but have not received the cash proceeds needed to fund the downpayment for the new property, you may take a bridging loan.
Buyer's Stamp Duty (BSD)
The BSD is calculated using the purchase price of market value of the property, whichever is higher:
First $180,000: 1%
Next $180,000: 2%
Next $640,000: 3%
Remaining amount: 4%
A fee charged by the bank if you accept the bank's offer letter, but do not proceed with the loan before receiving the loan amount.
A public notice put up to by any party who claims an interest on a property, such as a buyer who has paid a deposit to buy a property or financial institution that has granted loan to the owner or buyer.
It lapses 5 years after the date of lodgement, unless it is discharged or renewed.
Certificate of Statutory Completion (CSC)
A certificate issued by the Commissioner of Building Control, indicating works on a building are completed. It certifies that the property is ready to be occupied.
Action by the lender to claim the cost of certain subsidies or freebies (such as legal subsidies, valuation fees or insurance premium) should you fully redeem your loan earlier. The period during which this happens is known as Clawback Period.
An asset or security pledged for the payment of a loan, such as a property.
Fees collected for the purpose of maintenance and use of common property, including lifts and corridors.
A short-term loan for financing the construction of a new property, or the reconstruction of, addition or alteration to an existing property.
CPF Housing Withdrawal Limit
A limit to how much one can withdraw from his CPF to fund his property purchase.
You may use 100% of the Valuation Limit (VL), i.e., the lower value of either your purchase price or property valuation amount. The Withdrawal Limit (WL) limits you to 120% of VL, i.e., if you hit this limit, mortgage payments would need to be in cash.
A loan, or collection of loans, taken on by an individual or corporation. These can be of many different types, depending upon the needs of the company, and can vary from letters of credit to term loans.
A financial health report provided by Credit Bureau (Singapore) Pte Ltd of a borrower's credit payment history.
This report will be assessed by the bank to determine credit-worthiness before deciding whether and/or how much to lend.
A breach of your obligations to the bank, which may allow the bank to recall your loan, such as failure to make mortgage payments on time.
A scheme whereby the usual progress payments are deferred to a later date. For example, the scheme may allow you to make an initial payment of 20% to the property developer, with the balance due only upon T.O.P. being obtained from the relevant authorities.
The 20% upfront lump sum payment made when a property is purchased. This usually constitutes 5% being paid in cash and the remaining 15% payable in either cash and/or CPF funds.
Early Redemption (Partial or Full)
The early repayment of the loan before the maturity of the loan. Borrowers can typically make either a partial redemption and full redemption, but penalty fees may apply upon early redemption.
Any lien against a property or any restriction in its use, such as an easement; a right or interest in a property held by one who is not the legal owner.
The difference between the current market value of your home and your outstanding mortgage balances and other liens.
Fair Market Value
The likely selling price of a property between a willing buyer and a willing seller in the open market. In a mortgage or a home equity loan, the fair market value is usually determined by a valuation done by a certified valuer.
Fixed Rate Housing Loan
The loan interest rate is fixed for a set period (between 1 year to 5 years), during which charges are often imposed for early redemption.
Being protected against interest rate increases allows for easy monthly budgeting. However, if market rates were to fall during the fixed interest period, you may be left paying a comparatively higher rate.
Floating (or Variable) Rate Housing Loans
The interest rate on such loans may fluctuate or change periodically, usually pegged to the bank's Board Rates, which can change anytime.
When the reference rate changes, payments may increase or decrease accordingly. Examples of reference rates are the bank's prime lending rate, SIBOR, Swap Offer Rate or rates offered by the CPF Board.
You may also take up a property loan that comprises of a fixed interest rate for a number of years then switching to variable interest rate for the remaining term.
Property (land, and buildings built on it) that is owned by the owner in perpetuity, i.e. forever.
Someone who agrees to be responsible for another person's financial liabilities in the event that person can't pay what they owe.
A loan secured by the borrowers for a property.
Housing Agent Commission
A fee paid to the housing agent engaged to buy/sell the property. The quantum or amount of the commission is usually a percentage of the sale price.
Home Insurance/Mortgage Reducing Term Assurance (MRTA)
A type of insurance that protects the borrower's family from losing the home, should the borrower become mentally/physically disabled or passes away before the home loan is fully repaid.
An estimation of the value of a property, typically calculated by averaging the value of neighbouring properties.
The rate of interest that is charged on a loan. It can be fixed, variable, or a combination of both over the loan period.
Property that is purchased to generate rental income, or to be sold once it has appreciated in value.
The joint ownership of a property by two or more owners, without division of the shares. Upon the death of any joint holder, his interest becomes vested in the survivor(s).
Land Title Search
A search for whether a property has any prior registered interests and limitations; details of the owners; area of the property, and if the owner has used CPF savings or taken a bank loan for the purchase.
Property owned only for a defined duration, after which ownership is lost. In Singapore, leasehold is typically 99 years. 999-year lease properties are also technically leasehold.
Legal Fee/Conveyance Fee
Professional fees incurred by a lawyer to handle all the legal paperwork for your property purchase and taking up a home loan. Often includes the Conveyance Fee - the legal and administrative work associated with transferring the ownership of land or buildings from one owner to another.
Legal Requisitions Searches
conducted at various government departments, inquiring into the status of a property. For example, any encumbrances, whether the property is affected by any works, or if notices have been issued in respect of the property.
Letter of Intent (LOI)
A non-legally binding agreement between both parties to proceed with negotiations.
Letter of Offer (LO)/Facility Letter
A contract that states the terms of the loan package offered to the borrower and is issued by the bank upon acceptance of the loan application.
A claim by one party against the property of another as security for a debt. This must be discharged when the property is sold. A mortgage is a form of lien.
Loan Amount/Loan Quantum
The total amount the borrower agrees to repay the lender, comprising of both principal and interest amount.
The amount of time that a borrower will take to fully repay the property loan, typically up to 35 years in Singapore.
The ratio of sum you may borrow as a percentage of the property's value. Most local banks offer a maximum LTV of 80%, subject to regulatory requirements and the bank's prevailing credit policy.
A pre-determined period of years you're tied to the bank for a loan. Switching banks or loan terms during this period would typically incur penalties for the borrower.
The day on or before which all outstanding principal, interest and fees must be repaid.
Transfer of an interest in your property to a lender (bank) as security for the loan granted to you for the purchase.
A reducing premium term life insurance that protects the insured's (borrower) family against liability under the housing loan in the event of his death, total or permanent disability, or terminal illness. The Central Provident Fund Board (CPF) Home Protection Scheme is compulsory for all HDB flat owners who are using their CPF to repay their housing loans. Although it is not compulsory for private property owners to purchase mortgage insurance, it is advisable that they do so to prepare for unfortunate events and provide financial protection for themselves and their families.
The party that lends out the money (the bank).
The borrower or home owner.
Mortgage Servicing Ratio (MSR)
A limit on the proportion of a borrower's monthly gross income that can be used on your HDB mortgage repayment. Since 2013, MAS policy has limited MSR to 30% of gross monthly income.
A fee paid to the seller as consideration for the option to purchase a property. The Option to Purchase will be granted upon the payment of this fee.
Option to Purchase
A right or option given by the seller to the buyer to purchase the property at a specified price within a specified period of time (the validity period of the option). The Option to Purchase has to be exercised within the validity period by signing of the Sale & Purchase Agreement and payment of the downpayment.
Lump sum payments made in addition to your monthly instalments.
A fee charged to a borrower who partially or fully repays the loan in full within the loan's lock-in period. (Sometimes also referred to as a Redemption Penalty.)
Prime Lending Rate / Board Rate
The interest rate charged by a bank. This rate is typically reserved for its best and most credit-worthy customers and is usually used as a benchmark for loans.
Payment amounts(s) predetermined and scheduled by the developer to correspond with the property's different stages of development. Upon completion of each stage of construction, the developer will call for the required payment.
A type of insurance coverage for loss and damages to your property resulting from a fire. Compulsory for Housing Development Board (HDB) flat owners, and private property owners who take up a home loan from a bank.
A government tax payable annually based on a percentage of the annual value of the property. A property's annual value is the amount that it can be rented out for, regardless of whether the property is rented out or not.
Borrowers refinance by applying to a different bank for a new loan to replace the existing loan, typically to enjoy lower interest rates and thus lower monthly repayments.
Repricing is similar to refinancing. Instead of switching banks, you take up another mortgage loan with a more competitive interest rate or other incentives, with the same bank as your original loan. There might be a fixed conversion/admin fee incurred.
Sale & Purchase (S&P) Agreement
A legal agreement between the seller and the buyer for the sale and purchase of a property.
Singapore Interbank Offer Rate (SIBOR)
SIBOR is a benchmark rate that banks and other financial institutions in Singapore use to lend and borrow funds from one another. Two main factors that affect SIBOR are the US Federal Rate, and liquidity or availability of funds in Singapore banking sector. This is also the rate at which most home loans are pegged at.
A tax payable upon the purchase of a property.
For completed properties, Stamp Duty must be paid within 14 days from the date of signing of the Sale & Purchase Agreement if the document is executed in Singapore.
For uncompleted properties, Stamp Duty must be paid within 14 days from the date of exercising the Option to Purchase.
Swap Offer Rate (SOR)
A combination of the Singapore Interbank Offer Rate and market reserve costs. It represents the average cost of funds used by banks in Singapore for commercial lending.
Temporary Occupation Permit (TOP)
It is a permit issued to indicate that a constructed building has met a list of requirements, and is safe to enter, pending total completion of all works. Only applies to uncompleted properties. Receipt of TOP means keys to the units can be collected, and that the property is ready for occupation.
Joint holding of a property, where each owner has a distinct share in the property. Shares owned need not be in equal portions. Upon the death of a joint owner, his interest will be disposed of according to his will or under laws of intestacy.
A legal document showing a person's ownership of a property (keep yours safe!).
Title Search An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a lawyer.
Total Debt Servicing Ratio (TDSR) The proportion of your monthly gross income spent on servicing your financial commitments, including categories such as credit card balances, car loans, student loans, personal loans, and any credit term instalment plan you have.
Market value of a property indicated by a licensed valuer.
Valuation Limit (VL)
The lower of the purchase price or market value of the property at the time of purchase, as assessed by HDB. You (and your co-owner(s) may use your CPF Ordinary Account (OA) savings up to the VL to buy the property and/or pay the monthly instalments of the housing loan.
Withdrawal Limit (WL)
The maximum amount of CPF beyond the VL that the borrower can use for the property. Once the WL is reached, no further withdrawal of CPF is allowed.