This post was written in collaboration with POSB. While we are financially compensated by them, we nonetheless strive to maintain our editorial integrity and review products with the same objective lens. We are committed to providing the best recommendations and advice in order for you to make personal financial decisions with confidence. You can view our Editorial Guidelines here.
Taking out a home loan is something that most of us will have to do at some point in our lives. After all, we need a place to live.
However, there are many myths and misconceptions floating around about financing your property with bank loans, confusing bewildered would-be homeowners.
Here are two typical scenarios that you could find yourself facing when looking to get a home loan.
Scenario 1: David and Sarah financed their first BTO with a HDB Concessionary Loan — it seemed like the best and only option they had
David and Sarah are newlyweds who lived with their parents for a while before buying their first BTO a few years ago.
Initially, they took out a HDB loan, which they have been servicing since. At the time, they simply wanted a loan with the least fluctuation in interest rates. Furthermore, their parents had also taken up a HDB Concessionary Loan decades ago.
However, it was only recently that they realised the HDB Concessionary Loan may come with higher interest rates than bank loans.
All is not lost – what they discovered is that they can switch to a bank loan to enjoy lower interest rates.
David and Sarah decided to go with a fixed rate home loan, which offers them stability. Furthermore, this interest rate is locked in for a fixed period, so they get to enjoy a guaranteed lower interest rate than what they were paying for their HDB Concessionary Loan.
Finally, David and Sarah opted to go with a POSB HDB Loan which comes with an interest rate of 2.0% p.a. over a 5-year fixed period. Their loan size was $350,000 and they chose a repayment period of 20 years.
|Loan Type||Loan Amount||Tenure||Interest Rate||Monthly Repayment||Total Repayment (First 5 Years)|
|HDB Concessionary Loan||$350,000||20 years||2.60% p.a.||$1,872||$112,305|
|POSB HDB Loan||2.00% p.a.||$1,771||$106,235|
Comparing this to a HDB Concessionary Loan of 2.6% p.a. interest rate, the POSB HDB Loan translates to loan repayment savings of more than $100 each month, or over $6,000 for a 5-year period!
- If they hold a POSB/DBS Multiplier Account, both David and Sarah also get to enjoy additional bonus interest for each of their individual accounts.
- Since they are refinancing from another loan (i.e. the HDB Concessionary Loan), they are eligible for $2,000 worth of cash rebates which can be used to defray associated costs, such as legal and valuation fees.
- The POSB HDB Loan also includes complimentary six months of protection coverage against sudden loss of income or unexpected events, giving David and Sarah the assurance that their home loan repayments could be taken care of.
Scenario 2: 35-year-old Jonas is looking at purchasing a HDB flat as his bachelor pad
Jonas is a single bachelor who is purchasing his first HDB resale flat at the age of 35. He’s excited to finally have his own bachelor pad. However, he is aware that he needs to be cost-conscious when searching for a home loan as he is financing the house with only one income.
Being a savvy purchaser who’s done his research, he decides not to go with a HDB loan as he is aware that HDB loan interest rates are higher than bank loan interest rates currently. Although bank loans require a higher downpayment, he decides to go with a bank loan to enjoy more interest savings in the long run.
He has thus decided to take out a $100,000 loan with POSB, to be repaid over a period of 10 years, instead of HDB’s Concessionary Loan. POSB offers him the option of a fixed rate loan package with an interest rate of 2.0% p.a. to be locked in over a period of 5 years, which is significantly lower than the HDB’s Concessionary Loan interest rate of 2.6% p.a..
Jonas figured out this is how much he will save:
|Loan Type||Loan Amount||Tenure||Interest Rate||Monthly Repayment||Total Repayment
(First 5 Years)
|HDB Concessionary Loan||$100,000||10 years||2.60% p.a.||$947||$56,835|
|POSB HDB Loan||2.00% p.a.||$920||$55,208|
Over the course of 5 years, Jonas will save over $1,600 in terms of loan repayment! And this is for a home loan of just $100,000.
Jonas’ style is all about getting things done quick — and it helps that the POSB HDB Loan application process can be done online at his convenience. When he had a question, all he had to do was make a call to POSB’s team of Home Advice Specialists.
If you find yourself in the situations above, perhaps it’s time to consider if POSB HDB Loan is something which could meet your needs. Click here to learn more today.
Do you have any questions about taking out a bank loan to buy a HDB flat? Leave them in the comments!