What Is HDB Loan Interest Rate? A Comprehensive Guide To HDB And Bank Loans In Singapore

Personal Finance

What Is HDB Loan Interest Rate? A Comprehensive Guide To HDB And Bank Loans In Singapore

January 21, 2024

After applying for an HDB flat, further action involves selecting between a bank loan and an HDB loan.

Is it advisable to opt for the HDB loan that offers greater flexibility and lower initial payments but more costly interests? Or, instead, should you consider enrolling in a bank loan with cheaper interest rates, impose more stringent conditions, and necessitate a larger initial payment?

These inquiries challenge providing a definitive response. This guide aims to clarify what is HDB loan interest rate and the distinctions between the two options and help homeowners arrive at conclusions upon gaining a more comprehensive understanding.

HDB Loan In Singapore

HDB Loan Overview

In Singapore, residents can only use HDB loans exclusively when purchasing a Housing and Development Board flat. The HDB is responsible for giving out this loan. This loan is not eligible for acquiring a private residence.

HDB Loan Eligibility Criteria In Singapore

Before contemplating an HDB loan, one must ascertain their eligibility for that specific loan. The following outlines the eligibility conditions for those seeking to apply for a Housing and Development Board loan in Singapore.

  • It is a requirement for at least one purchaser to possess Singaporean citizenship.
  • They must not have two or more outstanding HDB loans at the time of application.
  • Should receive at least $14,000 per month, $7,000 for individuals and $21,000 for multi-generational families.
  • 30 months before applying for a mortgage, a person cannot own or sell a private residential home.
  • The duration of the property lease shall extend until the age of 95 for the youngest buyer.

HDB Loan Amount In Singapore

In the past, the HDB housing loan could finance up to 90% of the acquisition cost for brand-new flats and the lesser market value or resale price for previous-owner flats.

The recent implementation of property cooling measures in September 2022 in Singapore has modified the Loan-to-Value ratio for loans belonging to the Housing and Development Board. This adjustment reduces the maximum borrowing capacity for prospective homebuyers from HDB, limiting it to 80% of the property’s value.

However, by setting the Loan-to-Value ratio at 80%, individuals can secure a higher borrowing amount than when obtaining a loan from a traditional bank. While the prospect of a larger loan may appear advantageous, it is essential to consider that obtaining a larger loan might result in a higher overall interest payment.

Also, remember that CPF balances are a factor in the 80% limit. The Housing and Development Board mandates the complete depletion of each lessee’s Central Provident Fund (CPF) Ordinary Account (OA) balance, except for a maximum threshold of $20,000.

This implies that individuals with a considerable Central Provident Fund balance may encounter difficulties securing a loan with a loan-to-value ratio of 80%. This assertion does not hold in the context of bank loans.

HDB Interest Rate In Singapore

The interest rate for HDB loans is a plus 0.1% point over the current rate for OAs from the Central Provident Fund. If the country’s leading banks offer an average interest rate of more than 2.5% during three months, then one can use that rate to determine the CPF rate.

There has been no modification to the interest rate on HDB loans since July 1999, when it was set at 2.6% per annum. This option may be more favourable for individuals who have risk-averse tendencies.

An HDB loan might facilitate more effective financial planning due to the predictable nature of monthly payments.

HDB Downpayment Requirements

In the context of a direct purchase, it is essential to note that an HDB housing loan necessitates a minimum downpayment of 20%.

One can repay this downpayment using funds from the Central Provident Fund (CPF) Ordinary Account (OA), assuming that the individual possesses sufficient savings within their CPF OA. This implies that there may be no requirement for any monetary contribution explicitly concerning the initial payment.

HDB Loan Tenure Options

Loan tenure for an HDB loan is 25 years.

HDB Early Repayment Policies

There are no penalties for late payments on HDB loans because there is no lock-in term. Typically, the penalty for late payments amounts to 7.5% of the overdue sum rather than the entirety or outstanding balance of the loan.

The imposition of a penalty is often applicable if an individual opts for an early repayment, refinancing, or sale of their Housing and Development Board home from the lock-in time frame.

HDB Refinancing Options Within Singapore

It is possible to transfer one’s HDB loan to a bank loan, contingent upon the bank’s consent, even after obtaining a better loan-to-value ratio for the original loan. By obtaining an affordable interest rate, it is possible to decrease the amount of money required for monthly loan repayments.

HDB Loan Advantages And Disadvantages For Singaporeans

The advantages of HDB loans include:

  • Low interest rates. When you compare HDB with bank loans, they have lower rates.
  • The option to obtain mortgage-reducing coverage through the Central Provident Fund is available.

HDB loans also come with disadvantages, which include:

  • Not every individual can get an HDB loan.

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Bank Loan In Singapore

Bank Loan Introduction

Bank home loans refer to the financial resources you get from banking institutions to finance the acquisition of residential real estate. Secured loans are a financial arrangement in which the borrower’s property is collateral to secure the loan.

Financial institutions possess distinct criteria for determining eligibility, encompassing the borrower’s financial standing. They include:

  • Age
  • Income
  • Residence situation

Certain purchasers may not meet the eligibility criteria for an HDB loan in certain instances, necessitating a bank loan as the sole option.

Bank Loan Eligibility Criteria In Singapore

Banks impose distinct criteria for their loan offerings as well. The following are specific stipulations that one must meet:

  • They can be either Singaporeans, foreigners, or permanent inhabitants.
  • A favourable credit rating, preferably higher than BB.
  • The minimum annual income for single borrowers is $24,000, while for borrowers with a co-borrower, it is $36,000. However, foreign borrowers’ income is double the amount, or $48,000.

Bank Loan Amount Guidelines In Singapore

On the other hand, it is essential to note that bank loans typically provide financing for a maximum of 75% of the total purchase price.

The disparity of 5% necessitates a more substantial first payment, which might significantly impact one’s financial situation, particularly if they have limited liquid assets and Central Provident Fund reserves.

Bank Interest Rate

On the other hand, interest rates for house loans from banks tend to fluctuate more widely in response to market conditions. Obtaining a bank loan is a more favourable option for individuals with a higher tolerance for risk who desire to capitalise on interest rate swings to secure an affordable mortgage package, particularly during periods of market decline.

Financial institutions provide customers with two types of mortgage packages: fixed rate packages and variable rate packages. Floating rates exhibit higher levels of volatility due to their tendency to move per the standard rate, typically in response to prevailing market conditions.

Bank Downpayment Requirements

Bank loans necessitate a notably higher first payment of 25%. One must pay in cash a minimum of 5%. The applicant can then source the remaining 20% from the Central Provident Fund or housing grants.

Bank Loan Tenure Options Of A Loan

Loan tenure for bank loans for HDB flats is 30 years. However, if loan tenure is above 25 years, the lending institution will reduce to 55%. Also, the borrower turning 65 contributes to the reduction to 55%.

Bank Early Repayment Guidelines

In bank loans featuring a lock-in period, penalties are customary to encompass a range between 0.75% and 1.50% of the outstanding loan balance. This range typically exceeds an annual interest rate of 7.5%.

Bank Refinancing Options In Singapore

Nevertheless, converting a bank loan into an HDB loan through refinancing is impossible. One potential course of action is to renegotiate the pricing terms with the current bank or explore the option of transferring the loan to a different financial institution for refinancing.

Bank Loan Advantages And Disadvantages For Singaporeans

Bank loans come with several advantages, which include:

  • Reducing the overall cost of a mortgage.
  • It is possible to repay the loan over a longer period.

The disadvantages include:

  • There is no certainty of low bank rates.
  • Financial institutions typically demand a more substantial initial payment.
  • Financial institutions impose stringent income criteria.
  • Home protection schemes are not typically a part of bank loans.

Comparison Between HDB Loan And Bank Loan In Singapore

Comparison Between HDB Loan And Bank Loan In Singapore

When considering the choice between a bank loan and a Housing and Development Board loan, it is essential to thoroughly evaluate each option’s advantages and disadvantages. In addition, it is imperative to consider critical variables such as interest rates, loan duration, loan-to-value ratio, and other pertinent aspects.

HDB Vs Bank Loan Interest Rates

Most financial institutions allow customers to choose between fixed and floating interest rates, which are subject to periodic fluctuations. The prevailing interest rates for HDB loans are at 2.6%. The optimal choice between the two possibilities depends on the individual’s risk appetite.

The Duration Of A Loan Agreement

The maximum loan payback term for HDB loans is 25 years, or the sum of 65, and the borrower’s age, whichever is shorter. You can calculate the age using the average if there are two clients, such as married individuals.

HDB Vs Bank Loan Quantity

Determining the maximum loan amount available for a bank or HDB loan is contingent upon the borrower’s loan-to-value ratio. Housing and Development Board loans do not require a minimum loan amount.

HDB Vs Bank Loan Flexibility

Most recently, on 30 September 2022, the maximum loan-to-value ratio for conventional bank loans is now 75% from 80%.

HDB Vs Bank Mortgage Servicing Ratio

Housing and Development Board loans are subject to a Mortgage Servicing Ratio requirement of 30%. This implies that the monthly payback amount for the loan should not surpass 30% of the borrower’s income.

In the case of a variable income, calculating the mortgage service ratio will again be possible with the average income, with a 30% MSR margin deduction.

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Conclusion 

The selection between HDB and bank loans will be contingent upon the alignment with one’s long-term financial objectives and prevailing circumstances. The primary objective is to maximise the advantages of the available choice and successfully attain the objective of acquiring a cost-effective buy.