What type of housing loan should I get ?
If you intend to purchase a HDB flat, you have two choices regarding the financing- you can either opt for a HDB loan or go for bank home loans. There are pros and cons for each, and you should make your decision strictly based on your own financial status and needs.
Let's discuss the features of these 2 types of housing loans.
Being a citizen of Singapore is the first and foremost criterion for availing a HDB loan. If you are applying for the loan as a group, at least one buyer should be a citizen of Singapore.
The gross monthly income (GMI) comes in as another major factor. You are eligible for the loan if:
- Individual GMI is less than $6000
- GMI of family is less than $12,000
- GMI of extended family is less than $18,000
Again with respect to HDB loan refinancing, there are some governing terms and conditions. Your interest rates and subsequent repayment amounts might be reduced if you decide to shift from the HDB's loan program to the bank's financing program for such flats. However, one you have transferred, reversal of the procedure is not possible at any time.
You have a number of payments to make once you avail a HDB loan. These include monthly loan installment due every month on the first day, late payment charges for those not paying timely monthly installment, arrears payment, and capital repayments which can be paid completely or in parts.
Bank Housing Loan
Comparatively, the conditions of a bank loan are less restrictive. Apart from the flexible nature ensured by the absence of income bars, bank loans are made available through a more convenient process. You can choose between fixed rate packages and the considerably volatile floating packages such as SOR, SIBOR, fixed deposit pegged rates, and more.
Differences between HDB Loan and Bank Housing Loan
Here are the major differences between taking a HDB loan and a bank housing loan (accurate at time of writing). They have been summarised into a simple inforgraphic below too.
- Interest Rate: HDB loan is relatively stable at 2.6%, whereas the current rate for bank loans varies from 1% to 1.68%.
- Late Payment Charges: HDB charges interest at 7.5% p.a. while banks charge 24% p.a.
- Downpayment: HDB loans allow you to make downpayment using CPF, but bank loans require at least 5% cash upfront.
- Lock in period: Banks loans typically have lock-in period of 1-5 years which is not the case for HDB loans
Whether you go with a HDB loan or a bank housing loan depends eventually on your financial situation. If your cash-on-hand is smaller, HDB housing loan is the right option, but for greater hold on interests, bank loan is the best solution.
To find out more about taking up a bank loan vs. a HDB loan, refer to our full guide at http://www.redbrick.sg/blog/home-loan-singapore-ultimate-guide/
This post was contributed by Redbrick Mortgage Advisory. The team at Redbrick Mortgage Advisory has more than 60 years of banking experience and is proficient in structuring and sourcing for the best financing terms for both residential and commercial real estate in Singapore, Malaysia, USA, UK, Japan, Thailand and Australia.
This article first appeared on DrWealth.