Buying a home in Singapore is a milestone but it can also be a financial minefield if you don’t calculate affordability properly. Many buyers assume that if the bank approves their loan, they’re safe. But in reality, just because you can borrow doesn’t mean you should.
The key to making a financially sound home purchase is understanding how much you can truly afford in the long run. This means factoring in your income, existing debt, CPF usage, and how fluctuations in home loan interest rate can impact loan repayments when doing your calculations.
This step-by-step guide will walk you through a home loan affordability calculation, highlight common mistakes, and share tips on staying financially resilient.
With the help of tools like the HDB loan calculator from Moneysmart, you can get a clear, realistic picture of your home affordability.
Step 1: Start by Looking at Your Income and Debt
Your income is the foundation of affordability. Banks look at your monthly salary, bonuses, rental income, or business earnings to assess your borrowing power. In addition to your monthly earnings, your existing debt load is also equally important.
Before taking on any loans to fund your home purchase, always consider the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR):
- MSR (30%) → If you’re looking to buy either an HDB flat or an Executive Condominium (EC), only up to 30% of your monthly income can go towards mortgage payments.
- TDSR (55%) → Applicable to all property types, no more than 55% of monthly income can go towards all debt including mortgage, car loan, credit card repayment, personal loans, and even student loans.
Here’s an example to illustrate how the TDSR and MSR determines how much a prospective home buyer can borrow:
- Income: $8,000/month
- Car loan: $800/month
- Max mortgage under MSR: 30% of $8,000 = $2,400/month
- Max total debt under TDSR: 55% of $8,000 = $4,400/month
This means even if the TDSR allows for a higher loan, the MSR will cap the loan lower if you’re looking to buy an HDB or EC instead.
Step 2: Use the HDB Loan Calculator or Mortgage Calculator
Next, simply plug your numbers into the HDB loan calculator on Moneysmart or any other mortgage calculator (if you’re looking at getting a private property instead). You’ll get a quick overview of your monthly repayment amounts, total interest payable over your selected loan tenure, and how interest rate changes impact your loan affordability with just a click of a button.
Step 3: Factor in the Home Loan Interest Rate
One does not simply assume that interest rates today will always remain stable. In reality, home loan interest rate fluctuations are one of the biggest affordability risks.
Pegged at 2.6%, HDB loan interest rates have proven to be relatively stable but this is subjected to revisions with changes to CPF’s interest rates. Conversely, bank loan interest rates range between 2.8% to 4.2% and can change with market benchmarks such as SORA.
As such, it is always good to stress-test your budget before locking in on your home purchase. Ask yourself if you can still comfortably afford the property if rates rise by 1 to 2% before locking in the deal.
Step 4: Understand CPF Usage vs. Cash Outlay
As with many things in life, CPF is a double-edged sword. It lets you pay your downpayment and monthly installments without draining your cash funds. However, this reduces your retirement funds and not forgetting, any CPF deductions made must be refunded with interest upon selling your property.
So, wise up and strike a balance. Consider using your CPF for monthly installments while keeping some cash flow for flexibility.
Step 5: Factor In Other Costs Beyond the Loan
Many first-time home buyers make the mistake of calculating affordability based only on monthly mortgage payments. In reality, other overlooked expenses below can easily stretch their budgets by another 10 to 20%:
- Buyer Stamp Duty (BSD): this involves forking out thousands of dollars upfront. Use a buyer stamp duty calculator to check the amount before committing to a home purchase.
- Renovation: this sets buyers back by $30,000–$70,000 on average depending on property size.
- Legal fees: be prepared to set aside $2,500 to $4,000 on average for this.
- Insurance: fire insurance is mandatory, some even opt-in for additional home contents insurance.
- Maintenance: set aside $250 to $500 a month for condos or $20 to $90 a month for HDB conservancy fees.
FInd out more about the hidden costs of buying property in Singapore and how to effectively budget for them here.
Step 6: Explore Affordability for Different Property Types
| Property Type | Pros | Cons |
| HDB Flats | – Lower price points – Eligible for both HDB loan and bank loan – Grants available for first-time buyers |
– Subjected to MSR |
| ECs | – Middle ground between public and private housing – Price point higher than HDBs but lower than condos |
– Subject to MSR for the first 10 years |
| Private property | – No MSR, only TDSR | – Larger loans are possible but risk overborrowing – Home loan interest rates are typically more volatile |
To help us better understand how considering property types is crucial to ensure affordability, let’s take a look at the decision making process of a couple looking to buy their first home.
With a combined income of $9,000 a month and no existing loans, the couple is considering a $600,00 4-room resale HDB flat.
Step 1: Considering the MSR, their maximum mortgage amount would be 30% of $9,000 = $2,700 per month.
Step 2: Using a HDB Loan Calculator, repaying a $500,000 loan over 25 years at a 2.6% HDB interest rate = $2,265/month in loan repayments.
Step 3: Stress test their affordability with a 3.5% interest rate = $2,503/month (still under $2,700 per month and hence affordable)
Step 4: Factor in additional costs such as BSD, renovation fees, and legal costs which amounts to roughly $14,600 + $40,000 + $3,000 = $57,600.
Having gone through the calculations, it is safe to conclude that going for a re-sale HDB flat is an affordable option for the first-timer couple, leaving them even with room to save.
As a general rule of thumb for making sound financial decisions, always choose a property type that leaves you with sufficient breathing room and not one that pushes you to your financial limits.
Step 7: Strategies to Make Your Home Loan More Affordable
We get it, taking on a home loan is a huge financial commitment. Here are some ways to help make servicing your loan more manageable:
- Reduce existing debts → clearing your car loan or credit card repayments before applying for your home loan to boost your TDSR eligibility.
- Increase your CPF savings → having more funds in your CPF Ordinary Account means you can make a higher down payment which in turn translates to a lower loan amount.
- Stretch your loan tenure wisely → a longer tenure gives you lower monthly installments but this comes with a higher total interest. Find the right balance that works for you.
- Save aggressively before buying your home → having a bigger cash buffer gives you peace of mind against unexpected costs.
- Compare home loans across banks → Even a 0.3% difference in the home loan interest rate can save you tens of thousands.
Try out platforms such as Moneysmart for a side by side comparison of the best mortgage rates in Singapore.
Final Checklist
Before applying for a home loan to secure your next big property purchase, ask yourself if you’ve checked out all these boxes:
✅ The monthly mortgage instalment is less than 30% of your income (for HDB/EC) or less than 55% (for private/landed property).
✅ Monthly repayments will still remain affordable even if interest rates increase by 1 to 2%.
✅ You have sufficient savings for additional costs such as BSD, legal fees, renovation, and insurance.
✅ You’re not over-relying on CPF at the expense of your retirement funds.
✅ You still have a 6-month emergency fund after making your purchase.
Buy Your Next Home Stress-free
Calculating home loan affordability in Singapore goes far beyond asking, “How much can I borrow?”. It’s about ensuring your choice of property does not compromise your lifestyle, savings, or long-term financial security.
By using an HDB loan calculator, stress-testing against rising home loan interest rates, and accounting for hidden costs, you’ll be able to buy your new home comfortably.
Couple these wise calculations with Moneysmart’s mortgage comparison tools to find the best loan that fits your needs without overpaying in the long run.
Stop guesstimating how much home loan you can afford. Try the HDB loan calculator on Moneysmart to calculate your actual home budget today.
—-—-—-
FAQs on Home Loan Affordability
Q: How much should I budget as a buffer?
Financial planners recommend keeping at least 20 to 30% of monthly income uncommitted after mortgage payments.
Q: What if I can’t qualify for my desired loan?
You may consider a smaller property, extend your loan tenure, or increase your downpayment.
Q: Are bank loans always cheaper than HDB loans?
Not always. While banks sometimes offer lower starting rates, HDB concessionary loans provide stability. Use both options in the HDB loan calculator to compare.
