Choosing the most suitable loan for you depends on factors such as your credit score and how much home equity you have.

Choosing between a home equity loan and a personal loan requires consideration of your personal circumstances, financial goals, and the purpose of your loan. While these two types of loans are similar in some ways, they each have their pros and cons.

In this article, we will compare home equity loans with personal loans, as well as offer a solution that gives you the best of both worlds.

Table of Contents

• What is a Home Equity Loan?
• Do I Qualify For a Home Equity Loan?
• How Does a Home Equity Loan Differ From a Personal Loan?
• Compare and Apply For Loans With Lendingpot
• Conclusion

What is a Home Equity Loan?

Home Equity

Home equity is the difference between what your home is currently worth and the amount you owe on a mortgage (as well as any CPF fund usage and accrued interest to date for the property). In other words, it’s the proportion of a home’s current value that you own. You will have immediate equity in a house when you make the downpayment, and the equity continues to grow over time as you make mortgage payments and the property’s value increases.

To calculate your home equity, you will first need to get an estimate of your home’s value by researching the value of other homes like yours in your neighbourhood that have recently been sold. Then, find out the loan amount you can borrow from your mortgage lender. 

With those numbers, here’s how you can calculate your home equity:

Equity = [Value of home] − [loan balance] – [CPF usage and accrued interest on that home]

However, home equity is the value of your home that you own on paper. To actualise that value, you can either sell your home or take out a home equity loan.

Home Equity Loan

A home equity loan is a lump-sum loan secured by a collateral (i.e. your home), which accrues interest over a fixed period. You don’t need to disclose the purpose of the loan, but it can be used to finance large expenditures like home repairs or even your child’s tuition. Do note that while the bank doesn’t dictate what you should do with that money, it retains the right to foreclose on your property if you ever default on that loan.

The good news is, home equity loans typically offer lower interest rates and longer repayment terms in comparison to  personal loans, which allow you to keep your monthly repayments more manageable. 

Do I Qualify For a Home Equity Loan?

Not every homeowner qualifies for a home equity loan. Home equity loans are only available to those who own private properties. Since about 78% of homeowners live in HDBs and 22% in private properties (approximately four to one), most of us might not qualify for a home equity loan. 

When you apply for a home equity loan, the value of your home is taken into consideration alongside your credit score. 

These are the criteria for a home equity loan application: 

• Valid only for private properties (not HDBs)
• The remaining lease of the property at the end of the loan period must be at least 30 years.
• Property has been occupied for at least 5 years
• Loan-to-Value (LTV) limits of 75% are applicable (i.e. you can only cash out up to 75% of your property value, assuming it is fully paid).
• If LTV remains below 50%, total debt servicing ratio (TDSR) requirements do not apply 
• The loan repayments cannot be serviced via CPF

How Much Can I ‘Cash Out’ From My Home Equity?

The amount of money you can borrow from a home equity loan can be calculated as such:

Maximum loan amount = [Up to 75% of current home value] − [Outstanding home loan amount] − [CPF amount and accrued interest used for your home]

Note that although the Monetary Authority of Singapore (MAS) determines the maximum amount you can loan, banks will apply their own rules as well. In other words, even though you are allowed to borrow up to 75% of the property’s value, the bank may not necessarily approve your loan.

How Does a Home Equity Loan Differ From a Personal Loan?

Now that you know how home equity loans work, you might be considering between that and personal loans. Both are lump-sum loans that you can take out to pay off your liabilities, finance other aspects of your life (such as education, a wedding, or emergencies), or just help you out in terms of cash flow. However, which one is more suitable for you depends on your personal situation. 

Personal loans are unsecured loans generally taken out to fulfil short-term needs. They also tend to have a quicker approval process compared to home equity loans. On the other hand, home equity loans are secure and require you to use your home as a collateral. They have a longer approval process but lower interest rates than personal loans. 

The principal loan amount that you can get from a home equity loan is also significantly larger than a personal loan. The maximum loan amount you can get from a personal loan is 12 times your monthly income, assuming you have no other unsecured loans. Meanwhile, with home equity loans, you can get up to 75% of the value of your private property.

A Note on Home Loans Vs Home Equity Loans

Despite sounding similar, home equity loans and home loans actually serve very different purposes. While home equity loans can be used for anything, home loans (also known as property loans or mortgages) are a way for prospective homeowners to procure funding to buy their new house. 

That said, some features are similar, such as the tenor (up to 30–35 years) and maximum financing (up to 75% of the property value). And for both home equity loans and home loans, you can borrow money for a longer period of time, so the interest rates will be a crucial factor in your decision on which provider to go with. Home loans and home equity loans allow lower interest rates because they are both considered secured loans, where your house is used as collateral.

To qualify for a home loan/ home equity loan, you must:

• Be 21 years or older
• Have a good credit score 
• Have a minimum annual income of S$24,000
• Meet TDSR requirement of 55% unless LTV is less than 50%

Pros and Cons of Home Equity Loans, Home Loans and Personal Loans

Compare and Apply For Personal Loans & Home Loans With Lendingpot

What is Lendingpot? 

Lendingpot is a loan aggregator platform that allows you to easily compare different types of loans from multiple lenders all in one place. To date, it has helped over 7,000 happy customers access over S$146 million worth of funding to finance their life goals. Lendingpot aims to satisfy your financing needs, providing a plethora of personal loans, home loans as well as home equity loans. 

Aside from its fuss-free application process, it also offers exclusive deals for new and refinanced home loans, home equity loans, and personal loans with over 40 different lenders, including major banks such as DBS, UOB, Standard Chartered, private financial institutions, and more. By showcasing various loan offers in one place, Lendingpot empowers its users to make the most well-informed choice of which loan to take up. 

Rate Matching Guarantee on Your Mortgage

If you are interested in unlocking your home as a source of affordable financing, Lendingpot has a variety of home equity loans from different financial institutions for your choosing. It guarantees to give you the best home equity loan rates, even going so far as to promise to match any better offers you may be able to find, or else your next coffee is on them (via a S$20 Starbucks voucher). 

Cashback Guarantee on Your Mortgage

All home loans/home equity loans taken with Lendingpot also guarantee you a 0.05% cashback on top of all other existing bank offers and subsidies. Thus there is no reason why you should apply to a bank directly instead of through them.

Complete Guidance Along the Way

Enquiring about a home equity loan with Lendingpot is a seamless process. First, you can chat with Lendingpot’s fully automated assistant via WhatsApp to get a list of the best home equity loans available to you, without any pressure from a salesperson. 

If you have any additional questions and would like a more personal touch, you can then reach out to Lendingpot’s team of dedicated mortgage loan officers who will offer unbiased advice on which home equity loan best suits your financial profile. Between Lendingpot’s exclusive interest rates and its friendly customer service, you are sure to find a home equity loan that suits your needs. 

However, if you would like to take on a smaller loan and do not want to use your home as collateral, you are also able to access personal loans through Lendingpot. Not only does the application process require zero documents upfront, you can also get multiple personal loan offers within two hours of application. You can even get same-day loan disbursement, perfect for those who need to access funds quickly. 

Lendingpot — A Leading Personal Loan Aggregator

Lendingpot is not only able to give you the best rates across banks and moneylenders, it also gives 0.5% in guaranteed cashback to borrowers on all personal loans with Lendingpot (capped at S$1,000). 

Who is Eligible For Personal Loans?

There are some criteria to apply for a personal loan with Lendingpot, namely:

• Be between the ages of 18 and 70 years old
• Have at least 3 months of employment
• Singaporean/PR with at least S$1,200 in monthly salary
• Foreigners with an employment pass/S-pass with at least S$3,400 in monthly salary

How to Apply For a Loan with Lendingpot

Applying for a personal loan with Lendingpot is incredibly simple. You can do so through Singpass Myinfo, which makes the process extremely streamlined.

You can learn more about all the different loan offerings at Lendingpot’s website and make use of their helpful personal loan calculator to figure out your monthly loan repayment amount, given different loan amounts and tenors. 

Conclusion

The choice between a personal loan and a home equity loan depends on your circumstances and specific needs. 

A home equity loan may come with a lower interest rate, but it also has more stringent criteria attached to it, and it puts your home at stake. A personal loan comes with higher interest rates, but it is unsecured, so you don’t have to set anything down as collateral. Either way, these loans can serve different purposes. The key is to assess your purpose for the loan, your financial situation, and your ability to repay it before you decide which type of loan to go for.

Compare and apply for the best loans in the market with Lendingpot today!

Read More:

• How to Increase Your Chances of Getting a Personal Loan in Singapore
• 3 Serious Consequences of Not Repaying Loans on Time
• VC Compares: Loan Brokers Vs Banks
• Personal Loan vs Debt Consolidation vs Personal Line of Credit: What’s The Difference?
• Is Cash Out Refinancing a Smart Financial Move?