More home owners drawn to home equity loans but experts urge caution

They warn against tapping loan facility for investments because of risks

- Chor Khieng Yuit Senior Business Correspondent

Mr Leon Loh, a financial services consultant at Gen Financial Advisory, nearly took up a home equity loan in 2020, at the start of the Covid-19 pandemic.

At that time, he had already paid off the mortgage on his private property.

His bank HSBC offered him a home equity loan at an interest rate of 1.8 per cent, fixed for the first few years.

"The rates were attractive," Mr Loh said, adding that he started to think about where he could invest the money if he took the loan.

"Should I buy an insurance policy with illustrated benefits of about 3 per cent or should I buy an investment-grade corporate bond?" he said of his thoughts then.

A home equity loan, or the mortgage equity withdrawal loan, as it is called here, can be regarded as a second mortgage on the same property.

The first mortgage is taken to buy the property. When home owners pay down that loan, they are increasing their ownership stake or building up their equity in the property.

They can borrow against this equity by taking a home equity loan.

Executive condominium (EC) owners who have met the minimum occupation period of five years are also eligible for home equity loans, but HDB home owners are not.

While Mr Loh eventually decided not to take up HSBC's offer on the only home he has, many others have been drawn to such loans.

Data from Credit Bureau Singapore (CBS), provided in response to queries from The Straits Times, showed that the average amount of money owed on a home equity loan taken on a private property rose 15.5 per cent in the second quarter of 2025 from the same period a year ago to $467,401.

This is faster than the 11.7 per cent year-on-year growth in the first quarter of 2025.