Banks test home loans at 4%—but that does not mean rent wins

Singapore banks already assess private-home borrowers as though their housing loan costs 4% a year—even though three-month Compounded SORA, a benchmark used in floating-rate loans, was about 1.2% on 7 October 2026.

That 2.8-percentage-point gap matters because a recent commentary argued that renting could become cheaper than buying if mortgage rates rise. The useful question for a household is not whether renting or buying wins in general, but how higher rates would change the monthly bill for the same home—and whether that would upset the household budget.

The 4% rate is an affordability check, not a mortgage quotation

The Monetary Authority of Singapore (MAS) said banks use a 4% interest rate when assessing a borrower’s ability to service a residential property loan. This applies even when the mortgage rate offered is lower.

Banks also apply the Total Debt Servicing Ratio, or TDSR. It generally limits all monthly debt repayments—including the assessed housing instalment, car loans and other debts—to 55% of gross monthly income.

Together, these rules provide a buffer against rising rates. But passing the test does not mean a household will find the resulting repayments comfortable. The limit is a lending safeguard, not a personalised household budget.

Nor does the 4% assessment rate mean borrowers are currently paying 4%. A floating package may commonly be expressed as a benchmark such as Compounded SORA plus the bank’s margin. Fixed-rate packages and their conditions work differently, while fees and lock-in periods can also affect the real cost of switching or refinancing.

SORA—the Singapore Overnight Rate Average—is administered by MAS and calculated from transactions in Singapore’s overnight interbank funding market. The actual rate on a home loan therefore depends on both the relevant benchmark and the package agreed with the bank.

What a rise from 2% to 4% could do to one loan

Consider an illustrative buyer purchasing a S$1.5 million private home with a 25% down payment and a S$1.125 million loan over 25 years. These are assumptions for showing the interest-rate effect, not a current bank offer.

Using standard monthly mortgage calculations, the approximate instalments would be:

A move from 2% to 4% would therefore add roughly S$1,170 a month, or about S$14,000 a year, to this particular loan. That is meaningful even if the borrower had originally passed the bank’s affordability assessment.

Loan size changes the effect. Under the same 25-year assumptions, every S$100,000 borrowed costs about S$424 a month at 2% and S$528 at 4%—a difference of around S$104 monthly. A household with a larger down payment would face a smaller increase; one taking a larger loan would face a bigger one.

The US Federal Reserve’s decision on 16 September 2026 raised its target range by 0.25 percentage point to 3.75%–4.00%. Singapore interest rates generally move with conditions in major economies, but the Fed does not set Singapore mortgage rates directly. MAS said on 7 October that domestic interest rates are market-determined and that three-month Compounded SORA was then around 1.2%, below its 10-year average of 1.5%.

In other words, an overseas rate increase creates a reason to watch local loan packages. It does not by itself establish that Singapore mortgages have already risen by the same amount.

A lower monthly rent does not settle the comparison

Suppose the comparable home rents for S$4,500 a month. In the example above, rent would be lower than the mortgage instalment at all three interest rates shown.

But the difference between rent and the full instalment is not a clean measure of which option costs less. Part of every mortgage payment reduces the outstanding loan and builds the owner’s equity. Rent does not do that.

Buying also requires substantial upfront cash or CPF funds. The comparison should include the down payment, Buyer’s Stamp Duty and any Additional Buyer’s Stamp Duty that applies to the purchaser. Recurring ownership costs include maintenance fees, property tax, insurance and repairs. Selling later may involve agent fees and other transaction costs.

Renters avoid many of those ownership expenses and retain capital that might otherwise be tied up in the property. They may, however, face rent changes, moving costs and less certainty about how long they can remain in the same home.

The holding period is especially important. Purchase and sale costs are spread over many years for a long-term owner, but can weigh heavily on someone who sells after only a short stay. Any calculation that assumes the home will appreciate must state that assumption plainly; a future sale price is not known in advance.

Rents have been rising too

Renting is not a fixed-price escape from mortgage rates. Private residential rents rose 0.7% quarter on quarter in the second quarter of 2026, according to the Urban Redevelopment Authority. Rents for non-landed private homes, which include condominiums and apartments, rose 0.4%.

Over the same quarter, overall private-home prices increased 0.5%, while non-landed prices slipped 0.1%. These broad indices describe the market as a whole; they cannot supply the rent or purchase price for a particular unit.

That is why a fair comparison needs matched homes. Comparing the rent for a compact older apartment with the mortgage on a larger new condominium may make renting look artificially attractive. Comparing an owner’s decades-long stay with a tenant’s one-year lease creates a different distortion.

For someone choosing now, the practical comparison starts with the actual purchase price, a written loan quotation and the current rent for a genuinely similar home. The same spreadsheet should then test several mortgage rates and holding periods rather than producing one supposedly universal answer.

The rate that matters is the one your budget cannot absorb

The 4% bank assessment offers some protection against borrowers taking loans that work only at unusually low rates. It does not identify the point at which renting becomes better for every household.

For the illustrative S$1.125 million loan, the difference between 2% and 4% is about S$1,170 a month. A buyer who can absorb that amount while keeping emergency savings and meeting other commitments faces a different choice from one whose budget is already tight at the quoted rate.

Renting can indeed be the cheaper or more flexible option, especially for a short stay, an uncertain job situation or a household that would need to stretch for the down payment. Buying may suit someone seeking long-term housing stability who can carry the upfront and recurring costs without relying on rapid price growth.

The immediate local evidence is less dramatic than a simple “rates up, rent wins” conclusion: SORA was about 1.2% on 7 October, while banks were already testing affordability at 4%. The gap between those figures is best used as a household stress test—by calculating the extra dollars before signing the loan—not as a verdict on whether everyone should rent.