Actually what Fifa2006 is totally right. You should just stay with HDB as their loan rates have been pretty low and stable all along. You need to understand that bank rates are adjusted VERY frequently and actually fluctuate according to the economy.
If you do decided to get a bank loan, you will have to keep refinancing every few years (when the lock in period is over) so as to get the lowest rate at that time, which could be lower than 2.6% or higher than 2.6%, Not forgetting the legal fees and other fees which actually add up to your costs.
All in all, it's up to you, as I always advise my clients, HDB loan is the most stable loan and easy going loan that you can ever get in your life. And you can only get it for up to 2 times in your life (Or was it 3?). If you suddenly get hard up and can't repay, they won't force you and when you recover from your financial difficulties, you can arrange an installment plan to repay the backdated loans.
Below is also an example of why I believe HDB loans is the best. And also a real life example that I always use to explain to my clients.
Let's say I have 100k on hand and I can either 1) pay off my hdb loan and be debt free, or 2) Invest that money and get some returns.
Imagine if I had invested that money in something that can get returns of higher than 2.6%/pa with the money I have (instead of paying off my housing loan at one shot with that money), I can proudly say that HDB is loaning me the money to invest. Like what Robert Kiyosaki says, make full use of other people's money. And HDB's money is one of the cheapest and uncommercialized loans I can ever get.
Not to shoot down anyone or any banks in particular but I have been thru a few recessions and there will always be a few phrases that are heard commonly on the streets when recessions come. The best one that I always quote is :
1) Banks lend you the umbrella when it's sunny (Times are good) and ask for the umbrella back when it's raining (times are bad)
This is very very true. How many of you have received calls from financial institutions offering you super low interest or even interest free loans (read the fine print, only for first few days/weeks or months at the most) when times are good. (Not hard up for cash right? Nevermind, have you thought of going on a holiday or renovating your place?)
And how many of you actually receive such calls when times are bad?
And how many of you actually read about, and remember about all the repossessing being done when economies are down?
Look at all our poor SMEs or family businesses trying to make ends meet and how many of them have folded because of this exact quote. When times are good, banks lend money to such people to buy properties, expand businesses, when times are bad, banks ask for the money back and if you can't pay, kiss everything goodbye.
Last but not least let me tell you a story of how banks work. The guy I'm talking about is a client of mine and we frequently meet up for coffee. He tells me alot of stories and gives me alot of guidance. I'm sure some of you, after reading this story, would understand this situation better.
Lets name this guy A. A buys a property for 2.5million and gets a loan for 80%. Loan amount is 2m and up front of 500k cash. Everything is fine, loan payments made regularly and A even receives calls from the same bank asking if he wants any other loans and/or OD facilities.
Economic crisis comes, price of property drops. Bank revalues the property at 2.2m. Asks for topup to the loan, as the property's value has dropped. A has no choice but to fork out 240k in CASH to the bank. (Outstanding loan (2m) - max amount of loan for new property (1.76m))
Economic crisis continues, property valuation drops to 1.9m, A forks out another 240k. (1.76m - 1.52m)
Economic crisis continue again. property valuation is now 1.4m (Yes this is exact and true thing of what happened to A, although it's not such a drastic drop. If I'm not wrong, over the whole period (around 5-6 years), A had to top up about 5 times, until the valuation was at the bottom price of 1.4m, I just skipped over and went to 1.4m.) A has to fork out (1.52m - 1.12m) another 300k.
And now A has actually forked out (In CASH) a total of :
500k (initial cash 20%) + 240k (First re-valuation) + 240k (2nd revaluation) + 300k (3rd revaluation).
500k + 240k + 240k + 300 = 1.28m
How many of you actually able to survive this?
Credit to A, as he managed to survive this, by selling alot of his other properties at a loss. Credit to the SG Govt, which introduced and allowed re-financing.
Lastly, Credit to another bank which actually saved him by revaluating the exact property few months later at 1.7m which saved him from bankruptcy.
Please note that this matter happened sometime back (1997) and a friend of mine told me that such cases are now very rare. I am not too sure whether these stuffs will happen again but most importantly, Caveat Empor.
