The More-Facts, Less-Myths Guide to HDB Home Loans
For most of us, buying a home is an important milestone as it represents a transition to a new life stage. This moment “unfortunately” comes along with new financial considerations in the form of a home loan. The good news is that there is a way to lighten the weight of this burden.
We unwrap the common hearsays and debunk the myths about home loans. Get this right, and you are free to enjoy your new home to the fullest.
Myth 1: All First-Time Homeowners MUST Take a HDB Concessionary Home Loan
This is the biggest myth! There is no hard and fast rule that requires HDB home owners to take a HDB concessionary home loan. You can actually choose to take a home loan from a bank instead.
A HDB concessionary home loan requires a smaller down payment, which makes it easier on your pocket.
But if your financial situation allows it, a bank loan can be a smarter choice in the long run as some banks are now offering lower interest rates than the HDB concessionary home loan rate of 2.6% p.a.
Myth 2: Banks Loans are Always More Expensive than HDB Concessionary Home Loans
Conventional wisdom has it that HDB offers a better deal than banks. At an interest rate of 2.6% p.a., the HDB concessionary home loan seems hard to beat. But the reality is that it is beatable.
For the past decade, banks have been offering home loans with interest rates below HDB’s 2.6% p.a.
But even if you expect interest rates to rise, there are fixed-rate home loans offered by banks with interest rates that can rival HDB’s. For instance, DBS’ latest fixed-rate home loan package comes with an interest rate of 2.2%p.a. for the first 5 years (vs HDB’s 2.6%).
The interest saving of 0.4% looks small, but don’t underestimate it, especially for a large ticket item like your first home.
So, while a HDB concessionary home loan might appear to be the de facto option, do weigh your options to find the loan that gives you the best deal.
Myth 3: It Is Always Better to Pay with My CPF savings
Besides how much you need to repay on your loan, the other factor to consider when taking a home loan is ‘how’ to make your monthly home loan repayments.
Many will choose to use their finds in their CPF Ordinary Account (“CPF OA”) as the main mode of payment for their home loan. But is it always better to do so? It may seem enticing, especially when you do not “see” money flowing out of your bank account every month. Out of sight, out of mind, right? Not really.
Using your CPF savings for your home loan repayments can have a ripple effect on your retirement nest egg. Your CPF savings could have worked harder by staying put to earn the 2.5%-3.5% p.a. interest rate paid on the CPF OA. For a home loan which can stretch up to 25 years, the compounding effect on your CPF savings from the OA interest rate is huge.
Myth 4: Home loan Interest Rates are the Only Thing You Need to Consider
When it comes to finances, it is often about getting more for less. If you can make your dollar go the extra mile, why not? This is especially so if you are a young couple financing your first home. Every dollar you save can go a long way in helping you pay for your dream renovation.
Here are some other things to think about:
- Does the home loan offer free legal and valuation subsidies? This helps if you’re thinking about refinancing your home loan, or switching your loan from HDB to a bank.
- Can your home loan give your savings account a boost? Many banks offer perks if you do more things with them. For instance, you can earn higher interest rate on your DBS Multiplier Account if you credit your salary in, and take a home loan with DBS.
- How empathetic is your lender? No one plans to lose their job, but these things can sneak up unexpectedly. It is important to borrow from a lender who understands your concerns For instance, DBS has an enhanced HDB home loan that comes with complimentary insurance protection against retrenchment for up to 6 months – a first in Singapore.