Decoded: Common terms when buying a home

Property-related jargon can be a nightmare, especially for a first-time home buyer.

Before purchasing your home, you have to understand terms like Loan-to-Value (LTV) and Mortgage Servicing Ratio (MSR) for your budgeting purposes.

After setting your sights on your dream home, you will have to contend with the differences between Certificate of Statutory Completion (CSC) and the Temporary Occupation Permit (TOP).

Even when you have moved in, you may need to appreciate the Valuation Limit (VL) and Withdrawal Limit (WL) to find out how much of your Central Provident Fund (CPF) savings you are able to use to service your mortgage loan.

But don’t fret, we have covered all the grounds for you. With our comprehensive list of property-related jargon, it will help you make sense of it all.

Before buying a property

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.

Amortisation

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 towards 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.

Approval-in-Principle (AIP)

An indication by the bank of the loan amount a prospective buyer is eligible for.

However, an AIP does not equate to a formal approval. The buyer 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.

Board rate

A bank's benchmark interest rate, used to determine the interest rate of a loan. Different banks have different board rates.

Cancellation fee

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.

Credit facility

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.

Credit report

A financial health report provided by the 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.

Default

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.

Deferred payment

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 Temporary Occupation Permit (TOP) being obtained from the relevant authorities.

Downpayment

The 25% upfront lump sum payment made when a property is purchased. This usually constitutes 5% being paid in cash and the remaining 20% 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 or full redemption, but penalty fees may apply upon early redemption.

Fire insurance

A type of insurance coverage for loss and damages to your property resulting from a fire. It is compulsory for Housing Development Board (HDB) flat owners and private property owners who take up a home loan from a bank.

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 loan

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 could 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 and then switching to a variable interest rate for the remaining term.

Freehold property

Property (land, and buildings built on it) that is owned by the owner in perpetuity, i.e. forever.

Guarantor

Someone who agrees to be responsible for another person's financial liabilities in the event that person cannot pay what he or she owes.

Home loan

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.

Interest rate

The rate of interest that is charged on a loan. It can be fixed, variable, or a combination of both over the loan period.

Joint-tenancy ownership

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).

Leasehold property

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.

Loan amount / Loan quantum

The total amount the borrower agrees to repay the lender, comprising of both principal and interest amount.

Loan tenure

The amount of time that a borrower will take to fully repay the property loan, typically up to 35 years in Singapore.

Loan-to-Value (LTV)

The ratio of sum you may borrow as a percentage of the property's value. Most local banks offer a maximum LTV of 75%, subject to regulatory requirements and the bank's prevailing credit policy.

Lock-in period

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.

Maturity date

The day on or before which all outstanding principal, interest and fees must be repaid.

Mortgage

Transfer of an interest in your property to a lender (bank) as security for the loan granted to you for the purchase.

Mortgage insurance

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.

Mortgagee

The party that lends out the money (the bank).

Mortgagor

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.

Option fee

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.

Prepayment

Lump sum payments made in addition to your monthly instalments.

Prepayment penalty

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.

Progress payment

Payment amount(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.

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 the Singapore banking sector. This is also the rate at which some home loans are pegged at.

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.

Valuation

Market value of a property indicated by a licensed valuer.

During the purchase process

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.

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%

Caveat

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 a 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.

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.

Legal fee / Conveyancing fee

Professional fees incurred by a lawyer to handle all the legal paperwork for your property purchase and your 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.

Title Deed

A legal document showing a person's ownership of a property (keep yours safe!).

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.

After the purchase

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.

Conservancy / Maintenance Fees

Fees collected for the purpose of maintenance and use of common property, including lifts and corridors.

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.

Property tax

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.

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.

Find out how much you can afford

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