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The Drawbacks of HDB Loans
 

The Drawbacks of HDB Loans

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Learn about some of the disadvantages of taking a HDB loan.

Learn about some of the disadvantages of taking a HDB loan.

Read the full article at
http://www.icompareloan.com/resources/a-quick-look-at-the-drawbacks-of-hdb-loans/

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    The Drawbacks of HDB Loans The Drawbacks of HDB Loans Presentation Transcript

    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceThe Drawbacks of HDB Loans
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance1. No saving left in your CPF (CentralProvident Fund) Ordinary Account2. Possibly relatively higher interest andopportunity cost
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceAll the balance in your CPF Ordinary Account up to the valuation limit,if applicable, must be utilized first, before you are allowed to take aHDB loan,Then, HDB will decide on the loan quantum based on the outstandingamount to be paid for the flat.1.No saving left in your CPF (Central ProvidentFund) Ordinary Account
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance• You lose any interest earning after you use the savingsto pay for the flat, as the savings in the CPF OrdinaryAccount generate an interest, which has remained at2.5% p.a. since July 1999.• However, you save on the interest payable for the HDBloan which is 0.1% above the interest rate for theOrdinary Account. In other words, the loan rate is 2.5% +0.1% = 2.6% p.a.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceOnce you utilized the savings in the CPF Ordinary Account, youwould have to use the loan.What Is The Exact Loss?• CPF Ordinary Account Saving = S$50,000•Interest earned at 2.5% p.a.= S$1,250• Interest payable on loan at 2.6% p.a.= S$1,300• Loss = S$1,300 – S$1,250 = S$50
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceNevertheless, it is still possible than you would have beenbetter off if the saving had remained in the Ordinary Account,How?Because the first S$60,000 in all the 3 CPF accounts (Ordinary,Special and Medisave) earns an additional 1% interest, with upto S$20,000 from the Ordinary account.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceIf you rely on the balances in your Ordinary accountto make up the S$60,000, you forfeit this additional1% of interest.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceA simple illustration using the maximum amount of S$20,000That can earns the additiona1 interest in the ordinary accountLoss from using your CPF balances instead of the HDB loan:Interest Rate Loss= 3.5% (interest in CPF Ordinary Account) - 2.6% (interest on HDBloan)= 0.9% p.a.Annual Loss= 0.9% x S$20,000 = S$180
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceFurther, when the flat is sold, all CPF savings used andinterest that would have been accrued if the sum hadremained in the account, will be deducted from the salesproceeds, and refunded to the Ordinary AccountThis will reduce the cash proceeds which you may need forother purposes. Anyhow, if you had financed the flat with aloan (bank or HDB), you would still need to repay theoutstanding loan amount from the sales proceeds.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceAnother Drawback Of Depleting Your CPF OrdinaryAccount SavingsIn the event of a job loss there might not beadequate balance to service the monthly home loanrepayment; hence you may be required to service itwith cash.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceHow to circumvent the use of CPF Ordinary Accountbalances to pay for the flat?Just, invest it before you make the flat purchaseYou can do so for the savings in excess of S$20,000 underthe CPF Investment Scheme - Ordinary Account.Or instead you can transfer the monies in your OrdinaryAccount to the Special Account which interest rate hasremained at 4% p.a from 2000 till now.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance• Just note that this transfer is irreversible and there is alimit to it - the balance in the account after the transfercannot exceed the prevailing Minimum Sum.• Once the monies are in the Special Account, you cannotutilize it for your housing purchases anymore.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance2. Possibly relatively higher interest and opportunitycost• During a high interest-rate environment, a financing institution offers aloan with a lower interest rate,as compared to a HDB loan.• So the opportunity cost for not using a private loan becomes higher.• In addition, you also lose the 1% of additional interest on the savings(capped at S$20,000) in your CPF Ordinary account.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceWhether you decide on a HDB loan or a bank loan,you are not allowed to refinance to a HDB loan once youhave taken a bank loan.
    • Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *InsuranceAbout 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/