Explaining The Advantages of HDB Loans Versus Bank Loans

Before 1 January 2003

To buy a HDB flat, you had to finance it either with:

1. A HDB concessionary rate loan

2. Or a HDB market rate loan.


Since 1 January 2003

The HDB market rate loan was replaced by

home mortgage from financing institutions

Note: these are gazetted by the Monetary Authority of Singapore


HDB Concessionary Rate Loan

The HDB loan has more stringent eligibility
requirements as compared to a home loan from a
financing institution.


Eligibility Criteria of HDB


• For HDB flats only (resale or direct purchase from HDB)

• At least one buyer must be a Singapore citizen

• Must have a gross monthly income not exceeding $10,000
(or $15,000 for extended families)

• For DBSS flat the income ceiling is $8,000
(or $10,000 for extended families)

• For applicants under the Single Singapore Citizen (SSC) scheme,
the income ceiling is $5,000

•Must not own any private residence (in Singapore or
abroad), including HUDC and executive condominium

•Must not have sold a private residential property within 30
months and taken a HDB loan before

•Must not have previously obtained a HDB loan within 30
months

•Must not have taken more than two previous HDB loans


• Must not own more any market / hawker stalls or commercial
/ industrial property, any Exception?

Yes!

If you operate the business yourself, have no other source of
income, and only own one market / hawker stall or
commercial / industrial property), then you can.


Notes:

1. From July 2013, HDB loan will not be granted for flats with less
than 20 years of lease.

2. In addition, for flats with lease between 20 and 59 years, loan
approval and tenure will be subject to certain conditions.


Why Do Singaporeans Still Want
To Take A HDB Loan Despite The
Many Restrictions?


The Pros Of HDB Loan


1. Higher CPF (Central Provident Fund) withdrawal
limit

2. No cash component required for the down-payment

3. Higher loan quantum

4. HDB is more lenient

5. No penalty for partial or full repayment of loan

6. Stability in interest rate

1. Higher CPF (Central Provident Fund)
withdrawal limit


• For financing by bank loans, the CPF Ordinary Account
withdrawal cap is up to 100% of the valuation limit (VL).

• If the loan is still outstanding when this limit is breached, the
housing withdrawal limit can be increased to 120% VL
provided that half (entire) of the prevailing Minimum Sum is
set aside for borrowers below 55 (55 and above).


•This housing withdrawal limit varies with the purchase date of
the flat, for purchases from 2008 onwards it is 120%.

• With a HDB loan, you can enjoy a higher withdrawal limit
for direct purchase from HDB.

• For direct purchase from HDB, there is no limit to the saving in
the ordinary account you can use.

• For resale HDB flats, there is no limit to the saving in the
Ordinary Account you can use, after you have set aside half of
the prevailing Minimum Sum

But From July 2013 Onwards

•For flats with leases between 30 and 59 years the use of CPF
fund is allowed only if the remaining lease covers the buyer till at
least 80


For such flats, the withdrawal limit will be computed based on
the below formula:

Withdrawal Limit =

(The remaining lease of flat or property when the youngest
owner is 55 years old / The lease of the flat or property at the
point of purchase) x VL


For example
At the point of purchase the buyer is 38 years old and
the lease is 40 years,
And when the buyer turns 55, the remaining lease will
be 23 years.

Hence
Withdrawal Limit = 23/ 40 x VL


Table 1 further illustrates what is VL.
Table 1: VL

Flat B Flat A

Purchase Price 370,000 400,000
(S$)
Valuation (S$) 420,000 350,000

VL (S$) 370,000 350,000


• Flats with under 30 years of lease, using CPF fund is prohibited

•Buyers will to cough up cash for:

 The down-payment
 Monthly repayment of the loan
 Stamp duties
 And miscellaneous fees.


2. No Cash Component Required
For The Down-payment


• A key advantage of a HDB loan is that you do not have to
stump up any portion of the down-payment in cash.

• You are allowed to use the balance in your CPF (Central
Provident Fund) Ordinary Account to completely pay for it.

• With a bank loan, at least 5% of the Valuation Limit (VL)
should be paid in cash. If the loan tenure exceeds 30 years
or extends past the age of 65, the minimum amount jumps to
10%.


. Higher loan quantum

3. Higher Loan Quantum


•For the first HDB Concessionary Rate Loan you are taking,
the loan quantum is as high as 90% VL.

• In contrast, for bank loans, the quantum is capped at 80% LTV

• It dips to 60% if the loan tenure exceeds 30 years or
extends past age 65.


The next table compares the down-payment
components and loan ceilings for HDB and bank
loans.


Down-payment
Maximum Loan Quantum CPF Component Cash Component

HDB Loan ≤ 90% of VL** First 10% or more of ≥ 0% of VL
VL*
Private Loan without*** ≤ 80% LTV Next 15% or more of ≥ 5% of VL
Outstanding Mortgage AND
VL*
• Loan tenure does not
exceed 30 years; and

• Sum of loan tenure and age
of borrower at the time of
applying for the loan does
not extend beyond retirement
age of 65 years.
Private Loan without ≤ 60% LTV Next 30% or more of ≥ 10% of VL
Outstanding Mortgage
VL*
AND

• Loan tenure exceeds 30
years; or

• Sum of loan tenure and age
of borrower at the time of
applying for the loan extends
beyond retirement age of 65

*Do note that there is a limit to the CPF amount you can use for mortgage
financing, as discussed earlier in the article.

** This loan quantum only applies to the first HDB Concessionary Rate Loan. The
loan quantum for the second HDB loan will be reduced by the full CPF proceeds
and part of the cash proceeds made from the sales of the previous flat.

*** Since buyers are not allowed to own more than 1 HDB flat concurrently and
must dispose of their private residential properties within 6 months after buying
a HDB flat, technically there shan't be a case with an outstanding mortgage.


From 12 January 2013

The mortgage servicing ratio (MSR) for private loans must
not exceed 30% of the gross monthly income of the borrower
and 35% for HDB loans.

•SO, to be eligible for the maximum loan limits stated in Table 2,
you also have to

meet the MSR cap


For example

for a 30-year loan with a 80% quantum for a S$800,000 HDB
flat,
at an interest rate of 1.5% p.a., the monthly repayment
amount will be S$1,932.67.

In order to be eligible for a

•HDB loan: Gross monthly income ≥ S$5,521.92
•Private loan: Gross monthly income ≥ S$6,442.24


Thus, if your income is below S$6,442.24,

you will not be eligible for a private loan
of 80% LTV.


If you extend the loan tenure, current rules mandate
that you can

Only take up to 60% LTV.
Therefore, a HDB loan will allow a higher loan
quantum.


4. HDB Is More Lenient


• As a Government agency which main goals are to provide
affordable quality housing and encourage home-ownership,
HDB tends to be more tolerant of delinquent borrowers.

• But for a loan from a financing institution, you are always
required to pay the monthly stipulated amount even if you have
suffered a pay cut.


• Further, HDB usually grants deferment of monthly
installment payment if you have fallen into financial
hardship.

• The banks, on the other hand, will likely be hot on your
heels if you defer payment even for a day!


5. No Penalty For Partial Or Full
Repayment Of Loan


• HDB imposes zero penalty for partial or full repayment of its
loan.

• Most mortgages of financial institutions, come with a lock-in
period (aka commitment period) typically of 3-5 years.

• During this period, any repayment above the prior agreed
amount will result in a penalty – usually at most 1.5% of
the repayment amount.

• Financial institutions profit from the interest incurred on
the loan.

• Any partial or full repayment of the loan means a loss on
interest earnings.

• Hence, the penalty helps to compensate for this loss.


6. Stability In Interest Rate


•Since revision to the interest rate of a HDB loan is made
quarterly in tandem with changes to the CPF rate, which
has been the same for over 10 years.

•The interest rate has, likewise, remained stagnant. A HDB
loan, thus, offers relatively more stability than even a fixed-
rate mortgage which rate is only fixed for 3- 5 years.


•This is not saying that there have been no fluctuations in HDB
interest rates.

• For instance, in the 1990s rates demonstrated more volatility
(Source: CPF, “Historical HDB Concessionary Interest Rate”).


About Property Buyer Mortgage Consultants

Property Buyer Mortgage Consultants is a research focused independent mortgage broker. We
emphasize a consultative approach where we match our client’s financial situation with the best
fit mortgage loan, not simply a cheap loan.

We also help property buyers in their buying process helping them avoid pitfalls from
unscrupulous property agents. (We are not property agents, therefore there is no conflict of
interests.)

We also developed our proprietary home loan reporting tool which provides amongst other
things, 23 years Sibor history as well as 6 years worth of SOR.

Our service is free to you as banks pay us a commission on loan deals completed. Banks in turn
save on staffing cost as we are not on their payroll.
www.PropertyBuyer.com.sg/mortgage
www.SingaporeHomeLoan.net
www.iCompareLoan.com/consultant/

Explaining The Advantages of HDB Loans Versus Bank Loans

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Explaining The Advantages of HDB Loans Versus Bank Loans