Home Loans

Fistfighting Over Your HDB Loan (And Also, How Bank Loans May be Better)

Ryan Ong



Your HDB Concessionary Loan was on the verge of approval, when the new cooling measure kicked in. And I understand if you were a bit upset. But on hindsight, telling the phone operator to meet face to face if “he’s a real man” and to “come get some” was probably a bad idea. While I help you to prepare for this showdown, may I suggest you consider a bank loan instead?


Why The Fight Started in the First Place

Since the new Government cooling measures for HDB were announced on the 27th of August 2013, you might have noticed while screaming into the phone, that no one in HDB is able to give you the following; no matter how graphic your profanities become:

  • A Loan Tenure Greater than 25 Years
  • A Home Loan Interest Rate Lower than 2.6%
  • A Mortgage Servicing Ratio (MSR) Higher than 30%

Also unfair was your comparison of their phone operator to a diseased primate, and the assumption that he would be “too chicken to meet you in the parking lot at six”.

Your only hope now is to get angry. Get really worked up over missing the above, and hope it turns you into a rage fueled engine of mortgaging mayhem. Here’s what you’re missing:


1. Why The Hell Can’t I Get a 30 Year Loan?


Accounts document
Yeah, you can get a 30 year loan. You can come back in 30 years and get it.


There are two reasons: Either you’re only considering a HDB Concessionary Loan, or you have an acute case of not being rich enough. Let me explain, while you do some warm-ups. 

The maximum loan tenure for HDB Concessionary Loans is now 25 years, maximum. Only banks and financial institutions can go beyond this, extending the tenure of a home loan to 30 years.

Even then, a 30 year loan from a bank would come with a major drawback: a reduction in the maximum Loan-to-Value (LTV) from 80% to 60%.

So if the flat was $200,000, you can only borrow up to $120,000 (60% of $200,000) from the bank. Which means you need $80,000 for your downpayment (compared to $40,000 if you had an 80% LTV).

This an amount that’s disturbingly close to the number of stitches you’ll need, because hey, you’re taking self defence advice from an overweight finance blogger.


2. Why the Hell Can’t I Get a Lower Home Loan Interest Rate?


Playing Mahjong
The savings mean a lot to me, you know.


Once the fight starts, make like a bank loan and get really low (e.g. scream like schoolgirl, and when he’s surprised, kick him in the privates).

Oh, didn’t I mention bank loans are really low?

See, an HDB Concessionary Loan is at 2.6% interest. Bank loans, on the other hand, have been at between 1% to  1.9% for the past few years. That’s why landlords and property investors like them so much. But there’s a drawback:

The HDB Concessionary Loan is fixed at the CPF Ordinary Account Rate +0.1% for the entire loan tenure, regardless of what happens in the market. This is extremely stable as proven by the rate being at 2.6% for the longest time.

On the other hand, a bank loan is tied to things like the Singapore Interbank Offered Rate (SIBOR). These rates fluctuate on a daily basis, so there’s a chance that, in future, they may go beyond HDB’s 2.6% rate (or drop dramatically).

If you want more information on bank interest rates, ask the mortgage specialists at MoneySmart. Don’t worry, they have good hearing. They’ll be able to make out your questions, even if you’ve lost your teeth.


3. Why the Hell Can’t I Get a Higher MSR?


HDB cleaners
Hey, that’s my old mortgage banker! So uh, how’s the industry since 2011?


Get ready, I hear his footsteps.

So, you want something that’ll channel your inner beast? How’s this: HDB lowered your Mortgage Servicing Ratio (MSR).

This is the percentage of your income that can go toward servicing the loan each month. So: Higher MSR, you can get a bigger loan. Lower MSR, you get a smaller loan.

Now, it used to be that HDB Concessionary Loans had a MSR of 35%, and bank loans had a MSR of 30%. Back then, HDB loans had a huge advantage over bank loans. But due to the last cooling measure, the playing field is now level: They both have a MSR of 30%.

Speaking of level playing fields, is that him over there?

That guy looks like his breakfast is made of Rice Krispies and pro-wrestlers. The only way you’re leveling this playing field is with a freaking missile launcher.


The General Conclusion

Okay, before you eat the pavement, let me give you what little advice I can:

HDB loans and bank loans now both have a 30% MSR and a 25 year loan tenure cap in order to get the maximum LTV. The only difference is, HDB still allows a maximum LTV of 90% whereas banks cap it at 80%.

Oh by the way, if you’re concerned that bank rates might shoot past HDB rates (currently 2.6%), let it be known that there is currently a bank loan package that caps interest rates at the CPF Ordinary Account rate for 8 years. So during this period, you’ll NEVER be worse off than if you took an HDB Concessionary Loan (that is pegged to the CPF OA rate + 0.1%). Contact a Mortgage Specialist at MoneySmart to find out more.

So if you intend to sell your HDB within the next 10 years and currently have more than enough cash and CPF to front the extra 10% banks require over HDB, then consider taking a bank loan for your HDB because your immediate monthly savings from the lower interest rates will do you good in the long run.

Overall, don’t discount the bank as a viable contender; it’s a much better contender than you are right now. Uh, let go off his leg and stop begging like that.


Would you prefer a HDB Concessionary loan or bank loan? Comment and let us know!

Image Credits:
djclear904kenteegardinThe Integer Clubkodomut

Keep updated with all the news!


Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.