When you buy an HDB flat, you typically have the option to choose a Concessionary HDB Housing Loan or a bank loan. Today, most of you will likely go with the Concessionary HDB Housing Loan.
If you don’t already know, the interest rate you have to pay on the Concessionary HDB Housing Loan will likely be lower than what the bank home loan rate will charge you.
Despite being named “concessionary”, the Concessionary HDB Housing Loan does not always offer a lower interest rate, but is pegged to 0.1% higher than the CPF Ordinary Account (OA) interest rate – which means you pay 2.6% on the loan. Today, bank home loans are slightly under 3%.
Are You Eligible For A Concessionary HDB Housing Loan?
You need to find out if you are eligible to apply for a Concessionary HDB Housing Loan. In general, here are the eligibility conditions:
| Citizenship Status | At least one applicant must be a Singapore Citizen. |
| Household Status | Applicants must not have taken two or more HDB loans before (i.e. you can take a maximum of two HDB loans). This applies to both applicant(s) and occupiers(s) |
| Type Of Flat Purchased | Seniors aged 55 and above: if you’re not applying for a 2-room Flexi flat on short-term lease or Community Care Apartment. Singles aged 35 and above: if you are buying a 2-room Flexi flat on a 99-year lease from HDB in non-mature estates; or 5-room or smaller resale flat |
| Monthly Household Income | – $14,000 for families – $21,000 for extended families (i.e. you, your spouse, and your children as co-applicants or occupiers) – $7,000 for singles buying under the Single Singapore Citizen (SSC) Scheme |
| Property Ownership Status | Private residential property: All applicants and occupiers in the HFE letter application must not own or have disposed of private property in the last 30 months Non-residential property: All applicants in the HFE letter application can only own or have an interest in a single non-residential property. |
| Loan Period | The shortest of: – 25 years – 65 years minus the average age of the applicants – remaining lease at the point of flat application minus 20 years |
Read Also: [BTO Guide] Eligibility Criteria For Buying A HDB In Singapore
Applying For A Concessionary HDB Housing Loan
When you want to buy an HDB flat, via both HDB BTO application or a resale flat, the first thing you have to do is apply for an HDB Flat Eligibility (HFE) letter. You can do this via the HDB Flat Portal – logging in with your Singpass.
Besides ensuring you meet the eligibility conditions listed above, you will also gain a better understanding of the amount of housing grants you can get as well as amount of HDB housing loan you can take. This can help you better plan for your home purchase before embarking on the process.
While the HDB website states that you will receive your HFE letter in about a month, the processing of the application during peak periods, such as when BTO sales launches, can be longer. So, you are advised to apply for your HFE letter earlier. Your HFE letter is valid for 9 months.
Read Also: Complete Guide To HDB Flat Eligibility (HFE) Letter
Regardless of whether you take a Concessionary HDB Housing Loan or bank loan, your Loan-to-Value (LTV) is a maximum of 75% of the purchase price for new flats or 75% of the resale price or value, whichever is lower, for resale flats.
This means you have to pay a downpayment of at least 25% of the home purchase price in cash and/or your CPF OA savings.
The amount of loan you can take will also be constrained by a Mortgage Servicing Ratio (MSR) – which is capped at 30% of the applicants’ monthly income. For example, if you are earning $14,000 monthly as a couple, you can service a home loan worth up to $4,200 in monthly repayments.
You may be able to use more of your monthly income to service a bank home loan under the Total Debt Servicing Ratio (TDSR) scheme – which allows you to use up to 55% of your monthly income to service all your loans, including your bank home loan.
Your personal financial situation, job stability and past repayment records may also be assessed to determine if you are borrowing beyond your means.
You can only retain up to $20,000 in your CPF Ordinary Account if you choose to go with a Concessionary HDB Housing Loan. This can act as a buffer to pay down your home loan during instances of financial hardship, including when you lose a job.
Read Also: Taking A HDB Housing Loan: Should You Keep More Than $20,000 Or Let Your CPF OA Be Wiped Out
When you apply for a Concessionary HDB Housing Loan, you must also take up an HDB Fire Insurance – which covers the cost of reinstating damaged internal structures, fixtures and areas built and provided by HDB. A misconception may be that you have sufficient home insurance, however, do note that the HDB Fire Insurance does not include coverage for home contents such as furniture, renovations and personal belongings. You may also want to apply for a separate home contents insurance.
Most HDB homeowners, whether you take up a Concessionary HDB Housing Loan or bank home loan, will also have to take up the Home Protection Scheme (HPS) as you will likely need to use your CPF savings to pay for your monthly loan instalments.
Why You Should Go With A Concessionary HDB Housing Loan
Apart from offering a more attractive interest rate today, going for a Concessionary HDB Housing Loan also provides homeowners several other advantages.
#1 Your Interest Rate Is More Stable
Since the interest rate on the Concessionary HDB Housing Loan is set at 0.1% more than what CPF pays on your OA Savings, it can fluctuate – and does not have to be 2.6% p.a. But, despite a spike in global interest rates at an unprecedented rate over the past 2 years, the Concessionary HDB Housing Loan has not risen and is still charging 2.6% today.
On the other hand, interest rates on bank home loans are never guaranteed – at least past your lock-in period. For example, a bank home loan may have charged 1.2% at the start of 2022 – much more attractive than the Concessionary HDB Housing Loan. But it has risen to near the 3%-mark today, and has gone higher in past months.
A more stable interest rate help you plan your monthly financial outlay better. Even if you’re predominantly using your CPF savings to finance your monthly home loans, a spike in interest rates could mean you start having to use cash to pay for your monthly home loans.
#2 Less Work To Upkeep Your Home Loan
Lock-in periods for fixed home loans, which offer the most attractive interest rates, tend to be fixed for a short duration – usually between 2 to 3 years. After that, most bank home loans are pegged to the Singapore Overnight Rate Average (SORA).
When you take a bank home loan, you will find yourself having to constantly refinance or reprice your fixed home loans every 2 to 3 years. Servicing your bank home loan over a 25-year period means you may have to refinance or reprice your home loan 6 to 7 times.
Typically, you also have to pay a fee each time you refinance or reprice a loan, so any perceived savings when interest rates are lower (e.g. before 2022) will be slightly lower anyway.
With the Concessionary HDB Home Loan, you don’t have to worry about any additional administrative tasks or fees to upkeep your mortgage.
#3 Greater Flexibility In Managing Your Home Loan Payments
Homeowners on a Concessionary HDB Housing Loan can opt to make partial lump sum prepayments or even pay down your entire home loan without any penalties. This flexibility enables you to avoid incurring higher interest payments if you prefer.
You can also change your repayment period on your Concessionary HDB Housing Loan – either to extend or shorten your home loan tenure – without any penalties.
This can help you manage your finances better if the situation calls for it. For example, you may get retrenched and want to extend your home loan repayment period to pay as little as possible each month. Or you may also get a higher paying job and prefer to shorten your repayment period by paying more each month.
Making similar moves with a bank home loan may result in hefty fees and more paperwork.
Most homeowners may also not take into consideration this flexibility in managing the sale of your home. If you sell your HDB flat within the fixed tenure of your bank home loan, you may be liable for an early prepayment fee. This is typically about 1.5% of the outstanding loan amount.
#4 You Can Always Switch To A Bank Home Loan
Starting off with a Concessionary HDB Housing Loan also makes a lot of sense because you can always switch to a bank home loan if you truly believe it suits your needs better later one.
However, once you go with a bank home loan, the decision is irreversible – and you cannot refinance under with a Concessionary HDB Housing Loan.
Read Also: HDB Or Bank Loan: Pros & Cons To Consider Before Deciding On Which Housing Loan To Take
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