For many Singapore homeowners, property is not just a place to live but also one of the most powerful financial assets they own. With rising home values and stricter loan regulations, many are now exploring ways to tap into this wealth, either through a home equity loan in Singapore or cash-out refinancing in Singapore.
Both methods allow you to unlock cash using your home, but they operate very differently. Choosing between home equity vs cash-out refinance strategies depends on your financial goals, your mortgage situation, and how comfortable you are with restructuring or maintaining your existing home loan.
This guide explains what each option means, how they work, and when they may be beneficial, while also breaking down the impact of key rules such as the loan-to-value ratio in Singapore limit and TDSR and cash-out refinancing requirements.
What Is a Home Equity Loan in Singapore?
A home equity loan is a loan secured against the value of your private property. This option is only available for private homeowners; HDB flats are not eligible. It allows you to borrow a lump sum of cash while leaving your existing home loan in Singapore untouched.
How does home equity loan work?
You borrow against the difference between your home’s market valuation and your outstanding mortgage. The larger your equity, the more you can borrow. Banks will also assess your TDSR, age, tenure, and financial profile before granting approval.
If your property is fully paid, you can borrow up to 75% of the home’s valuation, adjusted for regulatory limits. If you still have an outstanding mortgage, that balance will be subtracted from the maximum loanable amount.
Homeowners typically use a home equity loan for:
- Business expansion or working capital
- Diversifying investments
- Funding education
- Major personal expenses
- Home upgrades or renovations
The key advantage is that your original mortgage package remains unchanged. This is ideal if you’re already enjoying a favourable interest rate.
What Is Cash-Out Refinancing in Singapore?
Cash-out refinancing in Singapore works differently. Instead of taking a separate loan, you replace your existing mortgage with a new one from another bank, usually at a more attractive rate, and borrow additional funds on top of it.
What is cash-out refinancing in Singapore?
It is essentially a combination of refinancing your home loan and withdrawing some of your home’s equity in cash. This gives you both:
- A potentially lower mortgage interest rate, and
- Extra liquidity for investments or personal use.
However, unlike a home equity loan, this option restructures your entire mortgage. It can extend or shorten your loan tenure depending on your choice, and it resets your repayment plan based on the new loan package.
Cash-out refinancing is often used for:
- Investment opportunities
- Debt consolidation
- Funding a second property purchase
- Business capital
- Major life expenses
If you’re already considering mortgage refinancing, this option lets you enjoy better loan terms while unlocking additional funds at the same time.
Key Differences: Home Equity Loan vs Cash-Out Refinancing
Understanding how these options differ is essential before making a decision.
1. Your Existing Home Loan
The biggest difference lies in how each option affects your current home loan.
- A home equity loan leaves your current mortgage untouched.
- A cash-out refinance replaces it completely.
If you currently enjoy a very low interest rate, keeping your existing mortgage may be beneficial.
2. Interest Rates
Home equity loans generally have slightly higher interest rates compared to standard mortgage packages. Cash-out refinancing typically uses the same rates as regular home loans, which can be lower. This is one reason homeowners prefer to refinance to cash out in Singapore when rates are favourable.
3. Flexibility and Purpose
A home equity loan is often preferred by property owners who want to keep their existing home loan stable. Cash-out refinancing suits those who want liquidity while also improving their mortgage terms.
4. Eligibility and Regulations
Both options are subject to strict regulations in Singapore. Banks will evaluate your income, TDSR, credit health, loan tenure, and total outstanding debts.
However, a critical difference is this:
- A home equity loan is only available for private property.
- Cash-out refinancing is available for both private and bank-financed HDB flats, but cash-out withdrawals are only permitted for private property owners. HDB owners can refinance for a lower rate but cannot withdraw equity in cash.
Why Loan-to-Value Ratio and TDSR Matter
Two major frameworks shape how much you can borrow through either method.
Loan-to-Value Ratio in Singapore
LTV determines the maximum amount you can borrow relative to your home’s valuation. The higher your outstanding mortgage, the less equity you can unlock. This applies to both home equity loans and cash-out refinancing.
TDSR and Cash-Out Refinancing
Total Debt Servicing Ratio limits your monthly debt obligations to 55% of your gross monthly income. Even if your home has significant equity, you cannot borrow beyond what TDSR allows. This rule ensures responsible borrowing across the board.
For many homeowners, TDSR becomes the biggest constraint, not the property valuation.
When Should You Consider a Home Equity Loan?
A home equity loan is a good fit when:
- You want to keep your existing mortgage rate
- You prefer separating the cash-out loan from your home loan
- You own a fully paid private property
- You want stable instalments with minimal change to your current structure
- You need liquidity but do not want to extend your mortgage tenure
This option offers simplicity and clarity, especially for homeowners who secured excellent mortgage rates in past years.
When Is Cash-Out Refinancing a Better Option?
Cash-out refinancing makes more sense when:
- Your current home loan rate in Singapore is high
- You want to refinance to a better package
- You want to restructure your loan tenure
- You need a larger amount of cash
- You are already planning mortgage refinancing anyway
This option gives you two benefits at once: better loan terms and access to extra capital.
Which Option Should You Choose?
If you prefer to keep your current mortgage and simply want access to liquidity, a home equity loan is the more straightforward option.
If you want both cash and improved loan terms, then cash-out refinancing in Singapore will likely give you more value.
Ultimately, the choice between home equity vs cash-out refinance depends on your mortgage rates, long-term financial plans, and how much control you want over your loan structure.
Final Thoughts
At the end of the day, tapping into your home’s value—whether through a home equity loan or cash-out refinancing in Singapore—is about choosing the option that fits your life, not just your loan. Both paths can offer meaningful flexibility, but the right choice depends on your goals, your comfort with restructuring your mortgage, and how you plan to use the funds. With a bit of clarity and careful consideration, your property can become more than just a home—it can be a practical tool to support your next financial step.
Author Bio:
Paul Grewal is a seasoned home mortgage consultant based in Singapore, renowned for his strategic finesse and deep market insights. With over a decade of experience, he specialises in helping clients navigate the complexities of property investment and refinancing home loans. Paul’s approach is highly personalised, ensuring that his clients secure the best possible terms and mortgage loan interest rates in Singapore tailored to their unique financial situations. An avid writer, he contributes regularly to leading financial publications, offering advice on smart property investment and financial planning. His workshops on financial literacy are highly sought after, reflecting his commitment to empowering homeowners in Singapore. This blog explains how homeowners can tap their property wealth through cash-out refinancing in Singapore. It also outlines when this option makes the most financial sense.
+ There are no comments
Add yours