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Current Interest Rate On Loans – Considering an HDB loan versus a bank loan is probably the second thought many first homeowners have after figuring out where their first home should be.
Are you overwhelmed with all the jargon and fine print? I am here to explain the difference between HDB loans and bank loans.
Current Interest Rate On Loans
A big advantage of HDB loans is that you can take out less cash for your down payment.
What Is Interest?
HDB loans have a maximum loan-to-value (LTV) ratio of 85%. Therefore, you can borrow up to 85% of the apartment’s value or price, whichever is lower. The remaining 15% down payment can be spent in cash or a combination of savings in the CPF General Account (OA).
On the other hand, the maximum LTV ratio for bank loans is 75%. It means 10% additional down payment.
In addition, 5% of the down payment must be paid in cash and the remaining 20% must be paid in cash and/or CPF OA savings.
The interest rate on HDB loans is always fixed at 0.1% above the corresponding CPF rate. If the current CPF rate is 2.5%, the HDB loan rate is 2.6% per annum.
Fixed Interest Rate: Formula And Calculation
Conversely, bank lending rates fluctuate greatly depending on market conditions. This also applies to loan packages tied to fixed rates. After a lock-in period of two to five years, so-called fixed-rate home loans change to variable-rate.
Whether you are taking a SIBOR, SORA, BR or FHR home loan, the interest rate is the normal rate plus the bank spread.
So “3M SIBOR + 0.75” means that the interest rate is the usual 3-month SIBOR rate plus the 0.75% (spread) charged by the bank.
If the SIBOR rate changes every 3 months, the interest rate will change according to the new rate.
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In other words, if you have a home loan at 1M SIBOR, your loan payments will change each month. If you have a home loan with 3M SIBOR, your loan repayment amount will change every 3 months.
Similarly, “BR +0.5” means that the interest rate is equal to the current board rate plus a bank spread of 0.5%. The difference is that the commission rate is set entirely by the bank.
FHR home loans are tied to a fixed bank deposit rate. So the interest rate is basically determined by the bank, so it’s very similar to a BR home loan.
However, SOR and SIBOR are currently being retired to make way for SORA, and there are several deadlines.
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Historical interest rates on bank loans for housing range from 3% to 4% per annum. More expensive than HDB loans.
However, the global financial crisis of 2008 sent bank interest rates to record lows for about a decade. Currently, bank loans are at 1.8% per annum and HDB at 2.6%.
Let’s say you bought an apartment for S$350,000. This figure assumes that the assessed value equals the purchase price.
An HDB loan with an LTV of 85% has a maximum loan amount of S$297,500 and a down payment of S$52,500.
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Conversely, if you take out a bank loan with an LTV of 75%, your loan amount will be S$262,500. The down payment is S$87,500.
Assuming an interest rate of 1.8%* per annum over a 25-year loan term, monthly payments are cheaper at S$1,087.24.
*Based on current general lending rates. We cannot assume that bank rates will stay at this level for 25 years.
Whether you’re buying an HDB BTO or reselling an apartment, HDB loans have stricter eligibility criteria, including an income cap.
Loan Vs. Line Of Credit: What’s The Difference?
HDB loans are not available if the monthly gross family income exceeds S$14,000.
HDB loans are limited to 25 years, while bank loans for HDB apartments have a longer maximum loan term of 30 years. However, if the term of the loan exceeds 25 years or the borrower’s 65th birthday, the LTV is reduced to 55%.
(To learn more about how the number of outstanding home loans can affect your loan amount, read our guide to LTV limits.)
Long term can be a good thing as it can lower your monthly payments and spread them out. On the other hand, it also means paying higher interest rates.
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HDB loans may be refinanced as bank loans (subject to bank approval) even after obtaining a higher LTV on the original loan. Low interest rates allow you to lower your monthly payments.
However, bank loans cannot be refinanced as HDB loans. What you can do is change the price at the same bank or go to another bank and refinance.
HDB charges late fees monthly and reviews the rates annually. From January 1 to March 31, 2022, the interest rate is 5.5% per annum.
At the same time, they tend to be more lenient and open to negotiating late fees. But that doesn’t mean you can leave without paying off your mortgage. You may still be asked to sell and downgrade your apartment.
Fixed Rate Home Loan
Another advantage of HDB loans is that there is no lock-up period, so there is no early repayment penalty. That way, you can pay it off sooner to reduce the interest and financial burden you have to pay.
However, if you have a loan from a bank, it is better not to pay it off early. If you reduce your bank loan during the lock-in period, the bank will charge you an early repayment fee when you collect interest.
If you are on a tight budget, HDB loans should be your first consideration as they require less cash outlay. A fixed interest rate can also give you a better idea of how much you are paying on your mortgage each month.
And if the interest rate is too high, you can always refinance your HDB loan to a bank loan later, but not vice versa.
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If you want to upgrade quickly (for example, if you want to sell your apartment and buy a private apartment as soon as possible), you may want to consider a bank loan or refinance quickly from an HDB loan to a bank loan.
But everyone’s case is different. Talk to your mortgage broker to better understand what home loan is best for you. We can help you understand your financial situation and choose the right loan for you.
Will you take out an HDB loan or a bank loan? Let us know in the comments section below or in our Facebook post.
If this article was useful, it recommends common mistakes to avoid when repaying your mortgage, and while experts say HDB resale prices will remain healthy in 2022, double-digit growth won’t be around anytime soon.
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You can receive up to 85% of the purchase price or appraisal, whichever is lower. For flats valued at S$350,000, the maximum loan amount is S$297,500.
The LTV for bank loans is 75% of the purchase price or appraisal, whichever is lower. For flats valued at S$350,000, the maximum loan amount is S$262,500.
Yes, you can refinance your HDB loan into a bank loan for a lower interest rate and monthly payments.
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