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HDB loan or bank loan? Reasons to choose a HDB BANK loan

+By Sean Lim

Founder of FindaHomeLoan.coTrusted by clients, Quoted in media

+About Us

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Many customers have always wonder the

differences and when should they choose one

over the other.

As everyone’ profile is different, let’s look at the

reasons why some take up a HDB bank loan.

HDB Loan or Bank Loan

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1. Aware of the HDB MSR guidelines.

2. Understand TDSR framework

3. Compare HDB bank loans 

Steps

For those who are eligible for HDB loan, let’s look at the factors.

+Loan Quantum

It is a level playing field now! Both HDB and

banks are lending up to 80% LTV of

valuation. Gone are the days of 90% from

HDB.

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Conveyance fees are payable by you for a new purchase. It can be paid by CPF OA monies.

For refinance, some banks will offer legal subsidy, about 0.4% or up to $2,500, whichever is lower.

Typical lawyer fees is about $2,500. A loan of $500,000 may attract a subsidy of $2,000 and the home buyer will pay the balance of $500.

Conveyance Fees

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HDB loan interest rate is 2.6% while banks are

offering 1% upwards. The various HDB bank

loans are based on SIBOR, SOR or bank board

rates on top of a spread. These HDB bank

loan rates are around 1% for floating while

fixed rates is higher at 1.4% to 2%. 

Interest Rates

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This is a question that many home buyers failed to ask

themselves first. Yes they want low and constant interest rates.

No they don't want changes and volatility in interest rates.

However, these two points seldom agree with each other. 

The perceived fixed rate of 2.6% for HDB concessionary loan is

not exactly correct.

It is not fixed. It is just that HDB has not revised and pegged it

differently since day one. They review it every quarter, with

the same frequency as 3M SIBOR.

HDB Loan Is Not Fixed

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Buying a BTO, DBSS, SERS or resale HDB flat comes

with a Minimum Occupation Period which is

currently between 5 to 7 years. So regardless of

your future upgrading plans, you must serviced the

mortgage for 5 to 7 years at least, before you can

sell and redeem fully the loan. This will be an

important factor in reasoning why a bank loan might

be better than a HDB loan.

Time Horizon

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MAS released a Total Debt Servicing Ratio

(TDSR) framework that should be adhered

by all banks. The things you should take

note are the 60% threshold, haircut/

discounts on variable income among

others.

We have published an article describing the

TDSR framework in details

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TDSR Framework

+ Savings From A HDB Bank Loan Over A HDB loan

Scenario 1

Mr Tan and family prefers :

Fixed packages ;HDB loan of 2.6% will provide them a peace of mind.

Loan sum of $400,000 for their flat.

Consideration to upgrade from HDB flat to a private apartment after 5 years.

Using the Refinance Loan Calculator, they computed the following :

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5 year fixed package with rates of 1.8% fixed for

the first 5 years and SIBOR + 1.15% thereafter.

Based on 35 years of loan tenure, the monthly

savings are $167 and $10,000 over 5 years!

This is a significant savings despite some outlay after

the legal subsidy of a bank loan.

Scenario 1

Savings From A HDB Bank Loan Over A HDB loan

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2013: DBS/ POSB has launched a package to

protect you from rising interest rates, and

guarantee to be cheaper than HDB concession

ary rate of 2.6%, for 8 years.

Click for a banker callback now!

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