Equity Term Loan: How It Works and What You Need to Know
For many property owners in Singapore, their home is not just a place to live—it is also a valuable financial asset. If you're looking for ways to unlock the value of your property without selling it, an Equity Term Loan (ETL) may be the solution.
This article will break down what an equity term loan is, how much you can borrow, and important factors such as CPF usage and accrued interest.
What is an Equity Term Loan?
An Equity Term Loan (ETL) is a type of loan that allows homeowners to borrow against the available equity in their property. In other words, you can take out a loan based on the difference between your property's market value and the amount you still owe on your mortgage—minus any CPF funds used and accrued interest.
This type of loan is commonly used for:
✔ Purchasing another property (e.g., as a down payment for an investment property)
✔ Business expansion (accessing capital for business needs)
✔ Debt consolidation (paying off high-interest loans)
✔ Home renovations (upgrading or improving your property)
✔ Education or major life expenses (e.g., funding university tuition)
However, it is important to understand the calculations behind an ETL to ensure you are making an informed financial decision.
How Much Can You Borrow with an Equity Term Loan?
Banks in Singapore typically allow up to 75% of the property’s market value to be borrowed, minus the outstanding loan, CPF used, and CPF accrued interest.
Step-by-Step Calculation
Let’s break it down with an example:
Example Scenario
Current Market Value of Property: $1,500,000
Outstanding Mortgage Loan: $500,000
CPF Used for Property Purchase & Repayments: $200,000
CPF Accrued Interest (Amount you must refund to CPF when selling the property): $50,000
Determine Maximum Loan Amount
Maximum Loan Amount = (75% × Market Value) − (Outstanding Loan + CPF Used + Accrued Interest)
(1.125M) - (500K + $200K + 50K) = 375K
Thus, the maximum equity term loan amount you can take is $375,000.
Eligibility Criteria for an Equity Term Loan
To qualify for an ETL in Singapore, you must meet the following requirements:
✅ Property Type – Only private properties (condominiums, landed homes, commercial properties) are eligible. HDB properties do not qualify for ETLs.
✅ Loan-to-Value (LTV) Limit – Maximum of 75% of the property’s market value.
✅ Sufficient Equity – After deducting outstanding mortgage, CPF used, and CPF accrued interest, there must be available equity left.
✅ TDSR Compliance – Your Total Debt Servicing Ratio (TDSR) must not exceed 55% of your gross monthly income.
✅ Good Credit Standing – Banks will assess your credit history before approving the loan.
Benefits of an Equity Term Loan
👍 Unlocks Property Value – Allows you to tap into your property’s value without selling it.
👍 Lower Interest Rates – ETLs have lower interest rates than personal loans or business loans.
👍 Flexible Usage – Funds can be used for property investment, business expansion, debt repayment, or renovations.
👍 Longer Repayment Period – Similar to home loans, ETLs offer longer repayment periods compared to personal loans.
Risks & Considerations
⚠ CPF Refund Obligation – If you sell the property in the future, you must refund the CPF used + accrued interest before getting any cash proceeds.
⚠ Property as Collateral – If you fail to repay the ETL, the bank may foreclose on your property.
⚠ Increased Debt – Taking an ETL increases your financial obligations, so you must ensure you can afford the repayments.
Equity Term Loan vs. Refinancing: What’s the Difference?
Should You Apply for an Equity Term Loan?
An Equity Term Loan can be a powerful financial tool if used strategically. If you plan to reinvest in property, grow a business, or consolidate debt, an ETL can provide low-cost financing. However, if not managed wisely, it can increase your financial liabilities and risk property foreclosure.
Before applying for an ETL, it’s crucial to assess your financial standing, CPF refund obligations, and loan repayment ability.
📢 Need Help? If you're unsure whether an Equity Term Loan is right for you, feel free to contact us for a free consultation!
