How does HDB loan work?

[nerdyfrog]

Legal fee should be partially or fully subsidized. Pls shop around.

 

[GenuineSeller]

Legal fee should be partially or fully subsidized. Pls shop around.

HDB $100k refinancing not many banks are interested. 0.4% subsidy is only $400.....$200k is only $800 subsidy.

But I got it fully subsidised ... Just that it's not from the banks mentioned. Recently my colleague shopped around and from uob, DBS, maybank....all of them have the same reply, ie 0.4% of loan amt subsidy.

 

[henrylbh]

HDB $100k refinancing not many banks are interested. 0.4% subsidy is only $400.....$200k is only $800 subsidy.

But I got it fully subsidised ... Just that it's not from the banks mentioned. Recently my colleague shopped around and from uob, DBS, maybank....all of them have the same reply, ie 0.4% of loan amt subsidy.

My loan of 450k fully subsidised.

 

[GenuineSeller]

My loan of 450k fully subsidised.

Sure... $450k is substantial... For people like me $1xxK or $200k... Luckily there is at least one bank willing to have our us as customer.

 

[tanjunse]

My knowledge is that they will empty mine and my gf's ordinary cpf account first, then give the remaining amount as loan. Is it correct?

For your info, CPF board will empty you and your wife's CPF Ordinary Account cash balance. Whatever the officer sees in your CPFOA cash balance, that will be amount taken out. You can control the amount in CPF-OA cash balance by opening up a SRS or CPFIS and transfer your money there by purchasing appropriate instruments prior to letting the HDB officer look up your CPF account.
I use this method to ensure my CPF-OA never goes to zero because of the stupid HDB rules. Now, at least if I lose my job, I have a three-year cash cushion in CPFIS transferable back to CPF-OA to pay for my mortgage, which means I have enough time to find a job or retrain myself for a new job before I really need to earn a salary. Also my wife has enough cash balance cushion for herself to pay the mortgage in event of my death.

 

[GenuineSeller]

Also my wife has enough cash balance cushion for herself to pay the mortgage in event of my death.

Didn't you get yourself a HPS or private mortgage insurance?

 

[nerdyfrog]

HDB $100k refinancing not many banks are interested. 0.4% subsidy is only $400.....$200k is only $800 subsidy.

But I got it fully subsidised ... Just that it's not from the banks mentioned. Recently my colleague shopped around and from uob, DBS, maybank....all of them have the same reply, ie 0.4% of loan amt subsidy.

So you got it fully subsidized?

Which means, TS just have to shop around.

 

[GenuineSeller]

So you got it fully subsidized?

Which means, TS just have to shop around.

Yup I paid nothing $0 to refinance....

 

[lampano]

Definately 30yrs for me.
U can shorten the loan period but not extend it

The excess $$ leftover mthly in yr cpf will acumm and buffer for any uncertainties.
It will also gian more int for the 1st 60k. Best of all, u can use for investment as well or use it pay lump sum back to hdb.

Theres no need to rush to pay off yr loan, there are alot better use for it.

 

[GenuineSeller]

It will also gian more int for the 1st 60k. Best of all, u can use for investment as well or use it pay lump sum back to hdb.

Theres no need to rush to pay off yr loan, there are alot better use for it.

It should only be $20K cos we are talking about OA. Anyhow it's good to go for maximum tenure (pls buy within means) even though one could pay up within 15yrs say.

 

[Laneige]

My knowledge is that they will empty mine and my gf's ordinary cpf account first, then give the remaining amount as loan. Is it correct?

Another question is, is it better to take a 20 years loan over 30 years? Essentially you are pay lesser interest if finish paying the loan, but what if you are selling it 5 yrs later? You are actually paying more money?

Assuming a $300,000 loan....

Total $ paid for 20yr loan after 5 years -> $96261.6, Interest paid -> $35,699.51*

Total $ paid for 30yr loan after 5 years -> $72061.2, Interest paid -> $37,369.11*


Which loan period is a better choice? Any expert can help?

of coz 20yrs loan lah
whatever u paid earlier will not be returned to you.

dont take a 30yrs loan if u can.

what i do is really empty OA
wipe out every mth CPF.
Any bonus, go refinance again to cut it shorter

the loan u paid for first 5yrs (extra due to 20 n 30yrs loan interest difference) will not be paid back to u

and dont forget initially yr first 5 loan repayment will be a lot go into interests and not a big sum into yr HDB unit or house. so for what? take 20yrs.

If same amt of $ we put in CPF, the interest is calculated slowly from one yr to another. compound? compared to the huge loan amt, the interest from HDB loan will be so much higher comparing to the interest we can earn from CPF

 

[Rxgn]

if one have bad credit ratings before.. hence impossible to get either hdb or bank loans.

Does that mean he cant buy any flats?

 

[junlove]

of coz 20yrs loan lah
whatever u paid earlier will not be returned to you.

dont take a 30yrs loan if u can.

what i do is really empty OA
wipe out every mth CPF.
Any bonus, go refinance again to cut it shorter

the loan u paid for first 5yrs (extra due to 20 n 30yrs loan interest difference) will not be paid back to u

and dont forget initially yr first 5 loan repayment will be a lot go into interests and not a big sum into yr HDB unit or house. so for what? take 20yrs.

If same amt of $ we put in CPF, the interest is calculated slowly from one yr to another. compound? compared to the huge loan amt, the interest from HDB loan will be so much higher comparing to the interest we can earn from CPF

It's a misconception that paying off HDB loan earlier is better. It's not. The 0.1% difference is negligible over the high number of years. Mortgage is monthly rest, while CPF interests is compounded. Like what someone mentioned, go use spreadsheet to calculate if in doubt.

The big difference is Choice and Liquidity(non-cash).
You're covered with standard home insurance already with HDB, so no big advantage in paying off earlier. There is a lot of what if, i.e. what if you get retrenched in later years, and have to extend loan period. What if, you met the trough of a recession, where putting CPF into investments will give you much better yield.

Note, when you take 30years loan now, you should based on affordability for 20 years or shorter, i.e leave alot of "fat".

 

[junlove]

I don't want to sound rude, but the interest on an outstanding loan of say $300,000 is definitely not comparable to the CPF interest of whatever small amount of money you have left in your CPF OA....

Did a simple calc on spreadsheet:

For TS's case of 300k loan.

1. Pay 30 years.
Monthly mortgage $1201.02
End of 20yrs paid interest of $85047.40

2. Pay 20 years, assume CPF no change at $1604.36, so $403.34 will go into CPF earning 2.5%)
Mthly $1604.36.
End of 20yrs paid interest of $115034.25
Interest earned from CPF $28888.25 (he'll meet 20k after 4 years, so should add additional 3200 of the 1% earned over 16years, i ignored the first 4 yrs in the b/m as it's negligible).

Guess what, thanks to the 1% over the first 20k in OA, the 2nd scenario is actually better!

Note: actually from TS's first post can check already. The compounded interest earned from the excess of $403.34 mthly over the 5 years is already more than the difference in interest from the 2 plans.

So now, ask yourself, why pay earlier????

 

[chill_lax]

Hi, may I know how is the interest rate calculated? Interest rate for hdb loan is 2.6% pa. For example in TS's case, for a $300k loan, is the interest rate of 2.6% pa compounding?

For example,
1st yr -- interest rate = 2.6% of $300k = $7800
2nd yr -- interest rate = 2.6% of ($300k + $7800) = $8002.6
........

Please correct me if I am wrong, just trying to have a better understanding on how it is calculated. ThankS!

 

[HunterXtreme]

Did a simple calc on spreadsheet:

For TS's case of 300k loan.

1. Pay 30 years.
Monthly mortgage $1604.36.
End of 20yrs paid interest of $85047.40

2. Pay 20 years, assume CPF no change at $1604.36, so $403.34 will go into CPF earning 2.5%)
Mthly $1201.02.
End of 20yrs paid interest of $115034.25
Interest earned from CPF $28888.25 (he'll meet 20k after 4 years, so should add additional 3200 of the 1% earned over 16years, i ignored the first 4 yrs in the b/m as it's negligible).

Guess what, thanks to the 1% over the first 20k in OA, the 2nd scenario is actually better!

Note: actually from TS's first post can check already. The compounded interest earned from the excess of $403.34 mthly over the 5 years is already more than the difference in interest from the 2 plans.

So now, ask yourself, why pay earlier????

Can enlighten me how you get monthly loan repayment of $1604.36 for 30yr loan of $300k? I think you typo and mixed 20yr with 30yr.

Actually I agree with you, there is not much benefit if you compare it this way. Choosing a 30yr loan and comparing it at the 20th yr mark with a 20yr loan, you won't save much.

However, to make a fair comparison, you should compare both 20yr and 30yr loan at the 30th yr mark.

For scenario 1, after completing the loan payment in 20yrs, what are the interest he earned in the next 10yrs on $1604.36 every mth? End of 30yr mark, total interest earned in CPF would be $26,400.76. However, total HDB loan interest is $85,047. After deducting the difference, you paid $58,646.24.

For scenario 2, there will be interest earned on $403.34 every mth but you have to deduct away the larger amount of interest paid to the loan. End of 30yr mark, total interest earned in CPF would be $71,182.61. However, total HDB loan interest is $132,367. After deducting the difference, you paid $61,184.39.

At the end of the day, it is still up to individual how they want to manage their loan and what is most comfortable. I still recommend clearing the loan as early as you can financially afford to do so.

 

[junlove]

Can enlighten me how you get monthly loan repayment of $1604.36 for 30yr loan of $300k? I think you typo and mixed 20yr with 30yr.

Actually I agree with you, there is not much benefit if you compare it this way. Choosing a 30yr loan and comparing it at the 20th yr mark with a 20yr loan, you won't save much.

However, to make a fair comparison, you should compare both 20yr and 30yr loan at the 30th yr mark.

For scenario 1, after completing the loan payment in 20yrs, what are the interest he earned in the next 10yrs on $1604.36 every mth? End of 30yr mark, total interest earned in CPF would be $26,400.76. However, total HDB loan interest is $85,047. After deducting the difference, you paid $58,646.24.

For scenario 2, there will be interest earned on $403.34 every mth but you have to deduct away the larger amount of interest paid to the loan. End of 30yr mark, total interest earned in CPF would be $71,182.61. However, total HDB loan interest is $132,367. After deducting the difference, you paid $61,184.39.

At the end of the day, it is still up to individual how they want to manage their loan and what is most comfortable. I still recommend clearing the loan as early as you can financially afford to do so.

Apologies, my typo, please swap the 1600+ with the 1200+. Other calcs remains.

Fair comparison can be made at ANY juncture, as we're assuming same amount of CPF inputs every month. Just use amortisation spreadsheet and you'll understand. The difference in interest for both plans is negligible. And with higher amt made in the first 20k from OA, paying longer actually saves you more money in most cases.

As i've said there is really no added benefit to pay as early as possible, the only benefit is a false sense of security that you're clearing debts early, it's psychological, it's not real finance.

 

[junlove]

To add on, based on your calc of $58,646.24 and $61,184.39 for the two cases at 30th year, your interest for scn 2 is wrong. As i've mentioned, for the first 20 years, the 2nd scn actually earns $3200++ more thanks to the first 20k earning 1% more.

 

[junlove]

Hi, may I know how is the interest rate calculated? Interest rate for hdb loan is 2.6% pa. For example in TS's case, for a $300k loan, is the interest rate of 2.6% pa compounding?

For example,
1st yr -- interest rate = 2.6% of $300k = $7800
2nd yr -- interest rate = 2.6% of ($300k + $7800) = $8002.6
........

Please correct me if I am wrong, just trying to have a better understanding on how it is calculated. ThankS!

Monthly rest, you can check formula for Amortisation, create a spreadsheet or download free ones. HDB's calc can only give you monthly payment info: http://services2.hdb.gov.sg/webapp/BB29MTHLY/BB29SMTHLY

 

[HunterXtreme]

To add on, based on your calc of $58,646.24 and $61,184.39 for the two cases at 30th year, your interest for scn 2 is wrong. As i've mentioned, for the first 20 years, the 2nd scn actually earns $3200++ more thanks to the first 20k earning 1% more.

yes I did not factor in the extra 1% as this isn't a permanent guarantee from CPF, it is just a temporary one until the rates go back up. So both scenarios will have extra cash.

But my point is, as long as you do not pay any cash for the loan, CPF loan duration is really up to individual and their comfort level.