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POSB HDB loan: Peace of mind (for 10 years).

Wednesday, April 3, 2013

A friend asked me if he should refinance his HDB housing loan with POSB. He currently has the HDB Concessionary Loan which attracts an interest payment of 2.6% per annum.

Pegged at 0.1% above the CPF-OA interest rate, the HDB Concessionary Loan's interest rate is unlikely to increase, ever.

Having a floating interest rate of 3 months SIBOR + 1.38%, the new POSB HDB loan gives the assurance that interest rate will not go higher than the CPF-OA interest rate for the first 10 years of the loan. CPF-OA interest rate is currently 2.5%.



What happens after the first 10 years? Well, interest rate will be revised to 3 months SIBOR + 1.48% and there will not be any upper limit to the interest rate anymore.

Intuitively, I feel that this is a good deal for anyone who wants to enjoy a lower interest rate on his HDB housing loan which, given the current very low interest rate environment, represents rather substantial savings.

Without the guarantee of an interest rate cap at the prevailing CPF-OA's rate for the first 10 years, however, it would not have been as attractive. So, you can imagine what I am going to say next.

The attractiveness of the offer ends in the 10th year as the interest rate could be higher than the HDB Concessionary Loan's rate by then. Of course, if the low interest rate we see today should still be around 10 years later, no matter how unlikely the case might be, then, this would still be a good deal.

From the 11th year, however, borrowers would be at the mercy of the 3 months SIBOR. They could try to re-finance their loans with other banks but they can never go back to the HDB Concessionary Loan.

Older readers might remember stories of how many HDB home owners switched to bank loans when the market was first liberalised many years ago. Initially, the interest rates on those housing loans offered by the banks were lower but they gradually increased. Those owners were badly affected.

Interest rates will not stay so low forever and anyone who signs up for this new POSB HDB loan should do so only with a contingency plan to pay off the entire loan at the end of the 10th year. It is a contingency plan and this means that the borrower should have the ability to do so but he doesn't have to if circumstances remain benign.

Take the loan, by all means, but put aside some money religiously every month to do partial capital repayments or enough for a full payment of the outstanding loan at the end of the 10th year.

This is what I would do.

Update (25 July 2014): It is 8 years now.
"Save up to S$20,000 in the first 8 years when you switch to the POSB HDB Loan! Plus, get a S$1,800 cash rebate, on top of capped interest rates and more. T&Cs apply."

Update (29 May 2016): It is 5 years now.
POSB HDB Loan is the first HDB Loan to offer interest rates capped at the prevailing CPF Ordinary Account rate* for the first 5 years. Not only will you be protected from interest rate surprises, you could enjoy guaranteed savings too! Guaranteed 0.1% p.a. lower than HDB Concessionary Loan rate for the first 5 years. Enjoy savings from lower interest rates compared to HDB Concessionary Loan rate. No prepayment fee.


PLEASE SEE LATEST UPDATE ON HOME LOANS:
http://singaporeanstocksinvestor.blogspot.sg/2016/08/fixed-rates-sibor-fhr18-or-hdb-housing.html

61 comments:

91822667 said...

Exactly What I will do also! thanks AK! look forward to your post each day.

AK71 said...

Hi 91822667,

Well, it is the prudent thing to do.

For people who are not able to have the contingency plan in place, staying with the HDB Concessionary Loan might be a better idea. :)

Kim said...

Hi AK
My current loan tenure with HDB is left only 6 years. So if I'm able to service my loan as per current for the next 6 years, it will be a good deal for me to take posb loan now since I am not going to exceed the 10 years guaranteen period?

AK71 said...

Hi Kim,

Assuming that you have a $100,000 outstanding loan now, under the HDB Concessionary Loan, over the next 6 years, you would be paying a total of $8,110.79 in interest.

As this POSB HDB loan has a floating rate, we would need to build 2 somewhat extreme scenarios to get an idea of how much you could possibly save.

Let us first assume that the 3 month SIBOR of 0.375% stays unchanged for the next 6 years, which means the effective interest rate would be 1.755%. The total amount you would fork out in interest payment would be $5,430.42.

In the second scenario, let us assume that the SIBOR shoots through the roof and the interest rate from POSB is capped at 2.5%. The total amount in interest payment would be $7,791.37.

So, in the first scenario, you would save S$2,680.37. In the second scenario, you would save a paltry sum of S$318.42. What you would really save would be a number in between these two, of course. :)

If the sum to be re-financed is less than $100,000, then, don't bother because you won't get the $1,800 legal subsidy from the the bank. So, it means you would have to bear all the legal charges yourself. You could end up losing more money.

mark said...

What if I'm on an existing bank loan pegged to 1m sibor? :P

AK71 said...

Hi Mark,

You win already lor. You would only be paying 0.31% per annum in interest on your loan currently, wouldn't you? ;)

Which bank is your loan from har?

Kim said...

Hi AK
Thank u for your time in explaining the 2 scenarios. Yeah my current outstanding loan is less than 100k....so can don't bother :)))

AK71 said...

Hi Kim,

I am sure many would be quite happy to be in your shoes. ;)

kh said...

Hi AK,

I think this is a great product and I would have taken it if it were available when I was choosing my bank loan. The rate is probably higher compared to other floating packages but that's a reasonable price to pay for peace of mind (for 10 years anyway).

I certainly hope something like this exists when I'm eligible to refinance in 3 years time.

Ray said...

Question is, why do capital repayment? Loan interest for HDB is 2.6% but the amount of money you are using to repay the loan can theoretically fetch you anything from 5 to 7% interest if you buy REITs for e.g.

AK71 said...

Hi KH,

I believe that this product is good for some people, for sure.

As long as we are aware of the fact that the "peace of mind" lasts for only 10 years and will have a contingency plan in place, go for it. ;)

AK71 said...

Hi Ray,

Oh, the comment on partial capital repayment was not made with reference to the HDB Concessionary Loan. I made the comment with reference to the POSB HDB loan.

A housing loan is usually long term in nature. 20 to 30 years would be quite common. A friend of mine in his mid 30s actually took a 40 years loan last year.

However, this POSB HDB loan only guarantees an interest rate cap for the first 10 years of the loan. So, I would plan for possible worst case scenario.

There is no guarantee that the stock market will continue to do well. There is certainly no guarantee that interest rates will continue to be so low in future.

However, the certainty of the housing loan, the lost of an interest rate cap after 10 years and the monthly required payments is rock solid. The possibility of much higher interest payments after the initial 10 years is very real.

How do we deal with all these? It depends on how much risk we are willing to take and where we are comfortable taking risk. For me, the roof over my head should provide me with peaceful shelter and not be a source of worry. :)

Keo Co said...

Hi all,
Do banks allow refinance part of HDB loan?
Example: I have 200k loan with HDB. Can I borrow 100k from bank, to pay to HDB? With this I can balance between the 2 loan, in case sibor go up after 10 years,

AK71 said...

Hi Keo,

We are allowed only 1 housing loan per property. :)

You could borrow from a bank some money to pay down the HDB loan you currently have but such a loan would usually attract much higher interest since it would be unsecured.

mark said...

AK. Bank sibor rates always has a +. It is currently 1m sibor + 0.8%.

So it is currently around 1.1% I think. HSBC.

Hey I am asking a serious question you know...
Next year I think it is 0.9 + 1m sibor. I cant remember... I refinanced within the same bank under a 1m sibor instead of 3m sibor a year plus ago.

AK71 said...

Hi Mark,

The information you provided in your earlier comment was incomplete. The "+X.X%" is an important consideration.

I thought you had a fairy god mother for a banker when you said your bank loan was pegged to the 1 month SIBOR only. ;p

1 month SIBOR + 0.8% is a fantastic rate but you would be at the mercy of the SIBOR. After all, it only goes up to + 0.9% next year.

I like what you have because I always plan on paying down my housing loans rapidly. However, for anyone who is not able to pay down rapidly, this will work against them when interest rates rise again.

It was not so long ago before the GFC that SIBOR was at 5+%. Once upon a time, it was almost 7%. That was at the turn of the century.

People getting drunk on cheap debt now. There will be some who might die from having too much debt in the coming years.

EG said...

Hi AK,

I believe that the CPF interest is pegged to the SIBOR as well so it does not always stay at 2.6% per annum. A look at the history of CPF interest rate show that 2.5% is the lowest it has ever hit while the highest is 6.5%. The last peak it reached was 4.41% during the 1997 crisis.

The package offer by POSB will mostly be attractive to owners who are currently on the HDB loan but intend to sell after the 10 years. Especially new owners who need to fulfill the MOP.

AK71 said...

Hi EG,

I don't think the CPF interest rate is pegged to the SIBOR. I remember vaguely that it was pegged to the banks' FD rates. Anyway, I did a search:

For Ordinary Account (OA), CPF members receive a market-related interest rate based on the 12-month fixed deposit and month-end savings rates of the major local banks.

The computed CPF interest rate, derived from the major local banks’ interest rates for the three-month period, 1 November 2012 to 31 January 2013, worked out to be 0.21% per annum. As this is below the legislated minimum of 2.50% per annum, the OA interest rate for April 2013 to June 2013 will remain unchanged at the legislated minimum of 2.50% per annum.


So, if the 1 year FD rates should rise to 2.51%, then, yes, we could see the HDB Concessionary Loan's rate moving above 2.6%. :)

Intending to sell is one thing but whether flat owners would be able to sell at a good price when the time comes would be another. It would be a double whammy if the real estate market is in the slums and if interest rate is much higher after the 10th year.

With all the building that is going on and with interest rates having a greater probability of being much higher than staying abnormally low, what are the chances?

Just throwing out an idea here for all to think about. Not a prediction. ;p

EC said...

I see a lively discussion on the new POSB mortgage loan!

AK yeah the CPF OA interest rate isn't pegged directly to SIBOR, but my feeling is that a higher SIBOR should imply higher FD rates - I guess there's some correlation? Of course there's a long way to go before FD rates will reach >2.5% so it's anybody's guess...

Eugene

AK71 said...

Hi Eugene,

I am definitely not in the know when it comes to how interest rates are fixed and my memory is also not what it used to be. So, readers will have to take whatever I say with a pinch of salt.

I am sure that it will be quite a few years before we see 1 year FD rates anywhere close to 2.5% per annum. ;p

SnOOpy168 said...

Perhaps I am the only handful who paid off the HDB loan way ahead of time. Clearing 30 years in 3.5 years.

Perhaps, I should let the loan run and take the cash to invest into the REITs then. Than I will be a closer match to AK's annual passive income.

But I will tell you, it takes discipline in both camps & directions : "make regular partial capital repayment" and the "take the money and invest for higher returns."

I had shared this many time and 99% called me an idiot. Here are the key points :

1. Can you set aside the $$ monthly, be safe and not touch it ? It can either be at every payday or end of the month.

2. Can you really achieve the investment returns ? Yes, now that I knew of REITs and at that time of GFC, it was like 8-10%, no brainers and all winners. But had you invested just before GFC...... that will be another swan song (?)

The HDB loan is a sure expense and interest rate is rather stable. A liability, mind you, that is easier to manage. Plus, as a single, I had no "backup source of income" from the other half.

3. I no longer can printout that business model, but somewhere somehow during the start of loan, I derived the conclusion that in the initial 1/3 of the loan's lifespan. For every 1 additional month of prepayment made to the capital, I shaved 1.3 (or was it 1.5?) months off the repayment period. This will not work towards the last 1/3 life of the loan.

Took a while to figure out why. Then realized that it was the way, the loans are repaid. Looking at the amortization table, the initial years, payment goes to service the interest, rather than the principal amount. Some even ask me if the software can do balloon payment. He so sure to hit 4D or Big Sweep ?

Anyway, i am most grateful for the few friends who started me on the early payment idea.

Happy to say that without a job tomorrow, I won't worry too much nor grow hungry lah.

Huat ah....

AK71 said...

Hi SnOOpy168,

I share your thoughts on the matter.

It is about what is certain versus what is uncertain. It is about our risk appetite. It is about our perception of things.

Peace of mind is priceless. For me, it is that simple. :)

John Mark said...

I have an outstanding loan of $318K with DBS and I've just reached 55yr old. After transfering the min sum of $319K to RA I still have more than $400K in OA and CPIF. However, I just retired and have no income. Q1)Would I still be qualified to take up the POSB HDB loan? Q2)if I choose not to withdraw my OA, instead use this to finance my housing loan; does that mean I actually generate profits by refinancing (assuming I am qualified)

AK71 said...

Hi John,

I am not the best person to answer your question. I hope some readers here might be more qualified to provide an answer. :)

Al Isaac said...

What if i only intend to loan $100,000 within 8 years?

Al Isaac said...

What if i intend to only loan $100,000 within 10 years? Is it possible?

AK71 said...

Hi Isaac,

Sounds like you should give POSB a call. ;)

AK71 said...

POSB HDB Loan has changed, it seems.

"Whether you’re buying a HDB resale flat, or thinking of refinancing your current HDB loan, you can now enjoy interest rates that are capped for 8 years to protect you from interest rate surprises, and give you guaranteed savings at the same time!"

So, the cap is now for 8 years and not 10 years.

Source:
POSB HDB Loan.

yeh said...

Hi mark.
my housing loan also under HSBC sibor.

But mine one is 3 mth sibor +1.5%

It has been 3.5 yrs I serving the loan.
Not sure whether can have a change.

Yours one sound better

betta man said...

Some folks purposely invest part of their CPFOA so that HDB do not take away all the OA funds. After a few months, they liquidate the investment and put the $$ back in CPFOA.

The "pros" is that when you lose your job, there are some funds in the OA to pay for instalments, which means no need to fork out cash from your wallet.

The "cons" is that you need to loan a higher amount, which will incur more interest.

What's your view on this ?



AK71 said...

Hi betta man,

I have not bought a HDB flat before. So, I am probably a poor candidate to answer your question.

However, given the scenario that you have painted, I would let HDB take whatever I have in my CPF-OA so that my housing loan is as small as it could be. This is because I don't like to have much debt in my personal life.

I would save more of my monthly wages and build a bigger emergency fund. After all, one reason for having such a fund is to cover regular expenses over a prolonged period of unemployment.

betta man said...

Hi AK,

If I take up the POSB HDB loan, I have to pay $1,800 legal fees ?

AK71 said...

Hi betta man,

You could ask them if they have any legal fee subsidy. Banks give this sometimes to attract home loan clients. :)

Annie Ng said...

Taking up bank loan, there are some cost to consider.. lawyer fee, mortgage insurance, CPF accrued interest... and maybe more..

comparing using CPF to make full payment vs using POSB bank loan, full repayment at year 9, the gain must be able to cover all cost mentioned above.

anyone to share their thought??
what are the current rate for lawyer fee and what are being covered?

thanks

AK71 said...

Hi Annie,

I don't have any experience with purchasing a HDB flat but for condos under a million dollars, legal fees are usually not more than $2,000. It isn't very much.

If we are confident that we have the ability to pay up the housing loan in full after the 9th year, taking the POSB HDB loan makes good sense. Or are we OK with a possibly much higher interest rate after the 9th year? ;)

Sam said...

Hi AK,

I just discovered your blog today, and immediately like the feeling of sharing and camaraderie, both in your posts and the readers comments.

We have an outstanding 22-year HDB loan of about $280K. If we intend to purchase a resale condo (1.5-2mil) in the next 1 year or so, do you think it make sense to fully pay off our HDB loan, or refinance with POSB? In the past 2-3 years, we have been gradually exiting equities and now hold about $500K cash, $200K shares, and $50K SRS.

Thanks and kind regards,
Sam

AK71 said...

Hi Sam,

Welcome. I am glad you like my blog. :)

I am not a finance professional and can only share with you what I might do if I were in your shoes.

If I were planning to get a condominium as a second property, then, I would fully pay down the outstanding HDB loan if I had the resources.

The primary reason for this is so that I could take a bigger loan for the condominium which would then be considered a first loan and not a second loan. Second loan has a much lower LTV.

Since the condominium's value is much higher than the HDB flat's, maxing out the loan for the condominium would make more sense.

Chris said...

Hi Sam

Allow me to comment. There are many variables to look at: I assume your HDB is bought together with your wife and both are working.

1)If you were to pay off your HDB loan in full, the loan on your resale condo will be considered as your first loan. Your Loan-To-Value (LTV) will be 80% for loan term of less than 30 years. That means you can loan up till 80% of the value of your condo.
You will also need to satisfy Total Debt Servicing Ratio (TDSR) of less than 60%. That means all your current debt must not be more than 60% of your monthly salary. This debt will include your existing car loan, credit card loan, study loan etc. The bank will perform a stress test using interest rate of 3.5% for residential property to ensure your ability to pay. This is to factor in potential rise in interest rate.
You & your wife age will play a part to determine the loan tenure. Calculation of loan tenure will cease at age 65. Eg. A 30 year old can borrow for 30 years (till age 60), a 40 year old however can only borrow for 25 years (till age 65).
The condo will be your second property. This will attract Additional Buyer Stamp Duty (ABSD) of 7%, on top of your regular stamp duty.
Lastly, you must satisfy MOP for your existing HDB.

2)If you do not wish to pay off your HDB loan, LTV for second loan will decrease to 60%. The rest of the other conditions still applies - TDSR, Stress test, loan tenure, ABSD, MOP etc.

3)To avoid paying ABSD, you can 'sell' your share of the HDB to your spouse. Your spouse will technically own the HDB. You will need to 'return' you share of the loan to CPF plus accrued interest. In this way you are free from loan and can purchase the resale condo in your name only. You can continue to use your CPF to finance your purchase of the condo. Just make sure your have the financial means and your spouse agree to such arrangement.

4)If your are self employed, the bank will take a 'haircut' of 30% of your pay. Eg. If one's annual pay is $100K, bank will consider annual pay of $70K.

5)If you like to extend the borrowing age past 65 years old to lower monthly mortgage, you can refinance typically after 6 months. Just make sure there is no penalty for any 'lock-in' period imposed by the bank.

You may want to google / visit IRAS / MAS website. Best to speak to the banker and obtain in principle agreement for your loan.

Hope this helps.

AK71 said...

Hi Chris,

Thank you very much for this. Appreciate the time and effort. :)

I am pretty surprised with point 3. I didn't think this was possible since couples must be married to buy a BTO HDB flat.

Chris said...

Hi AK
You are most welcome. I have benefited from your knowledge sharing and glad I can contribute somewhat. Sharing is caring :)

Point 3 is certainly possible. Couple are still legally married just that there is a change in the property ownership...that's all.

I heard story about couple divorced on paper just to do property transaction / or taxation purpose but still stays together as husband and wife... beat that!

AK71 said...

Hi Chris,

Point 3 is certainly a revelation although I have not met anyone who has actually done it.

A friend of mine bought a condominium unit a year or so ago and had to pay a 7% ABSD. His first property is a HDB flat. I don't know if he knows about point 3. Probably not. :(

Thanks again and I hope many more readers will, like you, share what they know in future. :)

Sam said...

Many thanks AK and Chris for taking the time to provide such informative responses.

Yes there are so many variables, and the info provided does help to clear up some parts of the puzzle.

Does the benefit of reducing the LTV make sense if we have sufficient cash and CPF to pay 40% of the condo value? Essentially:
- Option 1: Pay off HDB loan, remaining $220K cash + $100K CPF use to purchase condo and take 80% bank loan
- Option 2: Use $500K cash + $100K CPF to purchase condo, take 60% bank loan concurrently with HDB loan
We are ok on the TDSR and can take a 27 year loan tenure.

I am also curious about the 3rd point. I heard about such decoupling before, but I thought it was more to free up one spouse to take an 80% loan. If there are twin benefits of not having to pay the 7% ABSD on top of the fresh loan, I will seriously consider this. Any catch other than the relationship turning sour?

AK71 said...

Hi Sam,

The two options you have are both viable, of course. It boils down to dollars and cents to see which way the scales would tip. Would you be saving more money with option 1 or option 2? Interest rate would probably be the determining factor here.

As for the matter of decoupling, a friend told me that if the wife is younger than 35 years old, then, it is not allowed. Best to check with HDB.

Finally, what if the relationship soured? Er... It would depend on how honest the wife is, I guess. -.-"

AK71 said...

Hi Sam,

This is from my FB wall:

"Just things to note:

"1. The Single Person must be able to handle and service the loan

"2. A lawyer is more suitable to advise you guys on the actual cost though." Shaun How

AK71 said...

"HDB flat is regulated n u can't do that. U need family nucleus, single or divorce to buy under a single name. Private, u can decouple n sell ur share to hubby or wife. Buy the new one under I name than wouldn't be subjected to 7% stamp duties."

Joyce Chua in FB.

Chris said...

Ok let me talk to myself ..... you can tell I have been reading notes from AK :).

Both option 1 or 2 are workable, I don't see one is better than the other. It depends on how one look at investment, whether for own stay and time horizon.

Do I want to pay off my HDB loan in full? If I want to continue to own the HDB for sentimental reason or for retirement, I will pay this off. This is a 'secured roof' over my family and the garment will continue to take care of the heartlanders. I do not wish to contribute additional taxes as it can be put to better use.

With decoupling I can maximize the loan for the condo or take a loan that I am comfortable with. Decoupling can only take place once you meet MOP criteria for HDB. (if in doubt, suggest you email HDB for written confirmation). A few year down the road, I may like to consider investing in a new one/two bedder pte pty. Who knows the rules may be relaxed and no ABSD then? Please factor in the legal fee and stamp duties which is substantial. Why must we pay additional tax (ABSD) when it is already taxed with stamp duty?

Or maybe I like to sell off the HDB and invest in another pte pty? Do I see the HDB value going up further in time to come as it is already at a high?

Here comes the question – what if I divorce? On paper each party own a pty. So I guess we need to decide now who like to own which pty....

AK71 said...

Hi Chris,

Wow! It sounds like you have really done some thorough thinking and, definitely, have been talking to yourself a lot! ;p

I am curious if you have done this decoupling thing yourself or are you planning on doing it? The impression I got is that you currently have a HDB flat and that you are planning on buying a private property a few years later. All very exciting! :D

Chris said...

AK
You guess it right. I am sort of in this trade and planning to do this very soon. :)
There is no good or bad time if you sell and buy for own stay. You sell high and buy high, sell low...buy low. The second investment is the one that will make a difference 5-10 years down the road. Planning and timing is key.
Do I think HDB price will go any higher? Well the rate of increase will not be as fast as pte pty. On the flipside when the market tank, the rate of decrease for HDB price will not be as fast. Take a look at property price index with SRX or HDB website if you are into charts.
Oh dear...too much influence by AK and talking to myself again.

AK71 said...

Hi Chris,

Yup, if we buy an investment property at the right time, we can make a lot of money, for sure. :)

I sold my old place and bought a smaller place in a less prime neighbourhood. That was how I unlocked the value.

So, you plan on buying an investment property very soon? Does this mean that you think property prices will not soften much? Picking your brains here. ;p

HYDER said...

I've learnt quite a lot from reading in here.
I've been googling for this..I hope someone here can share and enln I will obtain my keys to my BTO flat.
My question is
i)can I almost immediately upon granted a HDB loan and getting my keys, do a refinance to banks?
ii)Besides having used up one HDB loan and legal fees injured, what other drawbacks or cons that I may be facing?

I am fully aware of Hdb vs banks loans pros and Cons. I am focusing on just the immediate shift from Hdb to banks

Chris said...

If you are buying pte pty as an investment, best to wait a while. There is a record number of new pty coming on board in few year. So it's a case of supply & demand (http://www.srx.com.sg/srx/index.jsp?link=blog&id=w2n2t2u). Do you think there will be more new citizens/PRs coming in? (hmm...I remember the magic number 6.9M) I think it will eventually but what about the rate of increase in population?

You may like to explore more on the transfer of ownership for HDB (http://www.hdb.gov.sg/fi10/fi10326p.nsf/w/ChgOwnerTypesOfTransfers?OpenDocument).

If you are taking HDB loan, one key benefit is - in the event of unforeseen hardship, you can possible discuss with HDB on some of restructuring as there is still a social obligation on the part of HDB to help those in true hardship case. You will have a roof over your head. Not for banks.

Note HDB will almost wipe out your CPF before granting a loan. Not for banks. Plan carefully if you use CPF for other investment purpose.

Once you decide to move away from HDB loan and go private, it is a one way street, no U turn allow.

Why would you take HDB loan and consider refinancing with banks?

AK71 said...

Hi Chris,

Thanks for weighing in again. I am learning many things from you here and your comments are going to be a valuable resource for all the readers here. :)

I certainly hope Hyder reads this and take this opportunity to discuss what is on his mind with you.

JW said...

Hi all, i have a concern here.. my mother 67years old and have a bank HDB loan of outstanding $110k for 6years tenor since 2013.. her loan started sept 2012 for 21 years tenor and about Apr 2013 we make a repayment of $90k and bal of $110k we change to 6years tenor and currently interest 1.48%.. i m helping here to pay the housing loan, unfortunately i m facing some financial difficulties. And has apply for tenor extended and interest servicing but was not successful. You all think i should help my mum to refinance with other bank?

JW said...

Hi all, i have a concern here.. my mum took up a bank HDB loan in sept 2012 for 21 years tenor, by last year Apr 2013, she make a repayment of $90k and bal of amount change to 6 years tenor.. right now we are facing financial difficulties (cause i m helping her in this loan), we approach the bank for increasing the tenor to 8 years and interest servicing scheme but is like being push here and there .. my question is optional can my mum refinance her hdb loan with other bank? She is 67years old now.. ans since her hdb is under bank loan so make no diff switch to other bank? What we want is to lesses our monthly instalment for next 7years.. can anyone share?

AK71 said...

Hi JW,

This is what I know:

1. If the loan has $100K or more left to be paid, refinancing is possible with POSB. They need a minimum loan quantum of $100K to consider refinancing applications.

2. The tricky bit is your mom's age. She is 67. I know that HDB's maximum loan repayment period is now 65 years minus the buyer's age. If I remember correctly, the eligible ages for the POSB HDB loan are from 21 to 65 which would exclude your mom too.

You might be able to get around the problem by purchasing your mom's flat, if you don't yet have one of your own. That was what a friend of mine did. :)

I will post your comment on my FB wall and see if there are any ideas from readers who follow me on FB as well.

Chris said...

Hi JW
Do not go to another bank with private loan. You need to seriously work out options with HDB on extending the loan period. HDB do has a social obligation and will not throw you out to live in the street in the worst case. Talk to your MP and get things sorted out.
Private bank will not care less of whatever situation you have.
All the best and hope it work out for you.

AK71 said...

Hi JW,

I think Chris is right:

"HDB has in place a proper arrears management process to ensure that families in difficulty are treated with due care and consideration. HDB also counsels such households on their alternative housing options. Only as a last resort would HDB take the step of acquiring their flat."

Source:
http://www.hdbspeaks.sg/fi10/fi10336p.nsf/cw/Elsieandfamily?OpenDocument

JW said...

Thank you AK and Chris.
My mum's loan is from pte bank loan. Me and family staying with her because our house will be ready March 2015.
We approach the bank since May but until now i think they can't/won't help us. I tot of refinance $110k to stretch 8 years tenor instead of now bal 5 years tenor.
Base on my mum's age if got guarantor you think other bank will refinance ?
Please advise.

AK71 said...

Hi JW,

I am not qualified to give any advice on the matter but this was something I found:

"Any person who contributes towards any part of the monthly repayment instalment of a credit facility granted to another person who has been assessed by a bank to be unable to pay any part of such instalment must now be included and named as a co-borrower of the credit facility, and not just merely a guarantor.

"This new rule applies to all Housing Loans where the option to purchase was granted on or after 29 June 2013 and to Equity Loans applied for on or after 29 June 2013, as well as to the re-financing of such Housing Loans and Equity Loans.

"This amendment prevents a person from indirectly obtaining more than one 80% loan (assuming he is less than 35 years old and the loan tenure is less than 30 years) by being a guarantee under one loan (say, an 80% loan where
the borrower is his wife, but he effectively pays all or part of the monthly instalments) and obtaining another 80% loan in his own name for another property."

Source:
http://www.rodyk.com/usermedia/documents/Property%20Notes%20-%20Revised%20Property%20Loan%20Rules%20-%20Guarantee%20No%20More.pdf

I suggest you talk to professionals. You might want to give all the different banks a try. Start with POSB. They are supposed to be the people's bank. :)

iamalazypig said...

Hi AK
My husband and I have a HDB loan of SGD50,000. We plan to decouple the hdb to get a second property in the future.
I plan to take a SGD100,000 loan from POSB HDB loan at an interest of max 2.5% and put SGD100,000 into the OCBC 360 account for interest of 3.05%.
What do you think of this idea?

AK71 said...

Hi iamalazypig,

I am probably not fully conversant with a topic like this but I will say that if you take a POSB HDB loan, try to ensure that the loan is paid up by the end of the 8th year for maximum savings.

Also, there is no telling when OCBC 360's higher interest rates might end. We have to remember that they are incentives and things could change in future. :)

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