Everything You Need to Know About Home Equity Loans in Singapore

Buying a house has many benefits. It is not just a roof over your head. A property may also serve to become an appreciating and tangible asset that you can leverage to achieve different financial goals at different life stages.

Some of the options for capitalizing the latent value of your home include partially or fully renting it, selling it, or right-sizing to another property. Naturally, these examples require you to adjust your living arrangements.

However, there is an alternative that allows you to access your property’s equity without compromising your living arrangements, and that is a home equity loan. We describe here how a home equity loan works in Singapore and what are its benefits and risks.

Before discussing a home equity loan, let’s learn more about "home equity” first. Home equity is the current market value of your property minus any remaining housing or mortgage loans or obligations attached to it.

Examples of home equity values

Let’s look at some examples.

From the examples above, we see that wealth is “locked” into your property.

The value of your home equity is highly dependent on the market value of your home at any point in the future. Gains in home equity could come from:

• Paying down the principal balance of your home loan. This reduces the debt you owe to your lender and increases your equity ownership in your home.
• An increase in the market value of your property due to improved amenities in your neighbourhood, such as a new MRT line, schools, malls, or parks. You could strategically buy a home that might have such a change by studying city master plans.
• Renovation and remodelling strategically based on specific circumstances in your neighbourhood – such as gentrification or design trends that will attract future renters. However, you will have to budget for the cost of the remodelling and estimate its return on investment. Note that this may be more applicable to upscale private properties, such as landed homes and luxury condominiums.

Lenders in Singapore, under certain regulations and guidelines, can provide a loan against the equity you hold in your property. Home equity loan is a secured loan where your property is used as collateral for the loan. Homeowners can benefit from the appreciation of the properties and borrow funds secured against the property to finance their other financial needs such as education.

Why: a home equity loan vs. selling or renting

In leveraging your home equity, renting or selling requires changing your living arrangements.

In the case of partially renting your home, you may have to live with a stranger and adapt to the changes which may come with it.

If you sell your home or rent it out fully, in addition to the frictional hurdle of moving all your belongings, you will have the added risk and costs of renting or buying another place to live in. In the case of selling and buying, there are multiple fees, taxes (such as stamp duties), and pre-payment penalties (on your outstanding loan, if applicable that you must consider.

In the case of a home equity loan, you have the continued benefit of living in your home while having access to a substantial portion of the value of your home in cash. Taking on a home equity loan incurs the interest rate charged by the lender, and the obligation to pay back the loan timely. If you do not repay the loan instalments on time or otherwise default on your obligations under the loan, the lender may sell the mortgaged property to recover the outstanding amount under the loan.

Why: a home equity loan vs. a personal loan

Depending on prevailing market conditions, a home equity loan may have an interest rate lower than a personal loan. In the case of a home equity loan, it is a secured loan with the property being the security, thus allowing you to enjoy a lower interest rate. Do note that if you do not repay the loan instalments on time or otherwise default on your obligations under the loan, the consequences can range from late fees, adverse impact on your credit report and possibility of a foreclosure in worst case scenario.

What: details of a home equity loan

The table below describes some of the salient regulations regarding a home equity loan in Singapore:

What are some examples of home equity loans

Let’s look at some examples of home equity loans.

Do note that there are limits to the amount of home equity loan you can access relative to your home equity value if you currently already have a housing loan.

A home equity loan is still a loan, and you would need to approach it with the same fiscal prudence required before taking up any kind of debt.

If you are taking out a home equity loan for reasons such as to pay medical bills or to reconsolidate personal debt, you must plan rigorously on how to pay it back.

Speak to a mortgage advisor today to learn about Citibank’s latest mortgage refinancing offers.

If you are looking to finance your dream home with Citibank’s attractive home loan packages, check out Citibank’s mortgage calculator and speak to a mortgage advisor today.

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1: Read more about mortgage refinancing here.

2: The money withdrawn from CPF to service a mortgage loan, including the interest accrued against the CPF money withdrawn, refers to the total monies owing to CPF. With this in mind,

Maximum amount home equity loan = Maximum loan you can borrow - Total Money Owing to CPF