While their future home would not be ready until many years later, Mr and Mrs Lim are getting more serious in their financial planning and one of the considerations is whether to take the loan from HDB itself or any of the major local banks.
So Mr Lim has decided to take it upon himself to do a comparison of the 2 options.
However, before you can even consider taking on a HDB loan, do check that you are actually eligible for it.
Also, being an existing DBS Multiplier customer (getting a home loan through DBS fulfils another of the condition and ups to the interest on your savings to 3.5%), Mr Lim will be using the DBS rates as a base comparison. Please make sure to check with your own bank for prevailing rates.
|Comparison||HDB Loan||DBS Home Loan|
|Interest Rate||2.6% p.a. (Prevailing CPF rate of 2.5% + 0.1% p.a.)||FHR8 + 1.45% p.a. (Prevailing 8-month fixed deposit rate can be found here)|
|Maximum Loan||Up to 90% of purchase price or market value, whichever is lower||Up to 80% of purchase price or market value, whichever is lower|
|Downpayment||10% of purchase price or market value, whichever is lower||20% of purchase price or market value, whichever is lower|
|CPF & Cash Upfront||10% CPF + no minimum cash payment||15% CPF + minimum 5% cash payment|
|Late Payment Penalty||7.5% p.a.||Overdue interest computed as 5% above DBS Prime Rate on the overdue amount|
|Early Repayment||No penalties.||1.5% penalty for early repayment within commitment period (typically 3 years)|
Some additional pointers to consider in your decision:
- Uncertainty about the fluctuation of the bank interest rate can be negated by refinancing the loan with another bank that offers a lower rate.
- As a general rule of thumb, one should refinance or reprice (sticking to the current bank) if it allows you to save more in terms of interest over the next three years than what it would cost you in associated and legal fees.
- Do note that the loan amount must be above $100,000 as the banks don’t do refinancing for loans below $100,000.
- As there is an additional 10% cash payment that you save from taking HDB loan compared to the bank, if you are able to invest the 10%, you might be able to cover the additional interest rate of the HDB loan (especially if you plan to sell your BTO flat within 5-10 years time).
- Alternatively, you can also start with the HDB loan initially and after 6 months of payment, refinance with the bank for lower interest rates. However, this will be a one-way decision, once you take on a bank loan, you can’t switch back to a HDB loan.