Explaining The Advantages of HDB Loans Versus Bank Loans
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  • 1. Explaining The Advantages Of HDB Loans Versus Bank LoansJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 2. 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 3. 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 SingaporeJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 4. HDB Concessionary Rate Loan The HDB loan has more stringent eligibility requirements as compared to a home loan from a financing institution.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 5. Eligibility Criteria of HDBJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 6. • 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 $5,000Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 7. •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 loansJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 8. • 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 9. 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 10. Why Do Singaporeans Still Want To Take A HDB Loan Despite The Many Restrictions?Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 11. The Pros Of HDB LoanJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 12. 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 rateJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 13. 1. Higher CPF (Central Provident Fund) withdrawal limitJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 14. • 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).Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 15. •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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 16. • For resale HDB flats, there is no limit to the saving in theOrdinary Account you can use, after you have set aside half ofthe prevailing Minimum Sum But From July 2013 Onwards•For flats with leases between 30 and 59 years the use of CPFfund is allowed only if the remaining lease covers the buyer till atleast 80Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 17. 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 VLJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 18. 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 VLJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 19. Table 1 further illustrates what is VL. Table 1: VL Flat B Flat A Purchase Price 370,000 400,000 (S$) Valuation (S$) 420,000 350,000 VL (S$) 370,000 350,000Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 20. • 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 21. 2. No Cash Component Required For The Down-paymentJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 22. • 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%.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 23. . Higher loan quantum 3. Higher Loan QuantumJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 24. •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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 25. The next table compares the down-payment components and loan ceilings for HDB and bank loans.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 26. 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 VLOutstanding Mortgage AND VL*• Loan tenure does notexceed 30 years; and• Sum of loan tenure and ageof borrower at the time ofapplying for the loan doesnot extend beyond retirementage of 65 years.Private Loan without ≤ 60% LTV Next 30% or more of ≥ 10% of VLOutstanding Mortgage VL*AND• Loan tenure exceeds 30years; or• Sum of loan tenure and ageof borrower at the time ofapplying for the loan extendsbeyond retirement age of 65
  • 27. *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 shant be a case with an outstanding mortgage.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 28. From 12 January 2013The mortgage servicing ratio (MSR) for private loans mustnot exceed 30% of the gross monthly income of the borrowerand 35% for HDB loans.•SO, to be eligible for the maximum loan limits stated in Table 2, you also have to meet the MSR capJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 29. 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$6,442.24Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 30. Thus, if your income is below S$6,442.24, you will not be eligible for a private loan of 80% LTV.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 31. 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 32. 4. HDB Is More LenientJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 33. • As a Government agency which main goals are to provideaffordable 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 alwaysrequired to pay the monthly stipulated amount even if you havesuffered a pay cut.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 34. • 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!Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 35. 5. No Penalty For Partial Or Full Repayment Of LoanJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 36. • 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 37. • 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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 38. 6. Stability In Interest RateJoin us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 39. •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.Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 40. •This is not saying that there have been no fluctuations in HDBinterest rates.• For instance, in the 1990s rates demonstrated more volatility(Source: CPF, “Historical HDB Concessionary Interest Rate”).Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
  • 41. About Property Buyer Mortgage ConsultantsProperty Buyer Mortgage Consultants is a research focused independent mortgage broker. Weemphasize a consultative approach where we match our client’s financial situation with the bestfit mortgage loan, not simply a cheap loan.We also help property buyers in their buying process helping them avoid pitfalls fromunscrupulous property agents. (We are not property agents, therefore there is no conflict ofinterests.)We also developed our proprietary home loan reporting tool which provides amongst otherthings, 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 turnsave on staffing cost as we are not on their payroll.www.PropertyBuyer.com.sg/mortgagewww.SingaporeHomeLoan.netwww.iCompareLoan.com/consultant/Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance