Now that the bank interest rate is at it's low, many are wondering, should I take advantage of the bank loan? Should I switch from my HDB loan to a bank loan?
Lets take a look at the options.
HDB Loan
- Stable interest rates
The HDB provides housing loans at a concessionary interest rate (currently 2.6%) to eligible flat buyers. Thus any flunctuation in the bank industry will not affect your existing mortgage interest rate thus giving you the security of a stable interest rate.
- Repayments flexibility
HDB loans offer the flexibility in terms of repayments and it does not charge you any fee when you decide to re-adjust your monthly mortgage instalments.
Unlike bank loans, there are no repayment fees, redemption fees and default fees.
- Not subject to CPF housing withdrawal limits
From 2008, the CPF housing withdrawal limit for property is at 120% the valuation limit of the property. However HDB concessionary loan takers are not subjected to this rule when they use their CPF to finance their HDB flat.
- Initial downpayment
No cash component is required. You can use up to 100% of your CPF Ordinary Account savings to pay the initial 10% deposit as well as the balance of the purchase price.
- No lock-in period
HDB loans have no lock-in period, and no penalty for early redemption. You may make a partial repayment at any time with no penalty.
- Lesser risk of foreclosure
HDB is likely to be “kinder” to you in times of financial difficulty. If you lose your job and default on your loan, the banks may repossess your flat if the loan agreement provides for it, whereas the HDB is likely to be less harsh. For the HDB loan, you can apply to defer payment for a length of time if you are facing financial problems.
A Bank Loan
- Lower interest rate for first few years
If you are looking at a short term property loan and to minimize your mortgage payments, you can consider a bank loan to save on the interests.
- Fees and charges
There are fees involved if you decide to switch from HDB to bank loan
- Initial downpayment
You have to make a cash downpayment of at least 5% of the Valuation Limit (VL)
- Subject to CPF housing withdrawal limits
You can only use your CPF up to 120% the valuation limit of your property.
- No turning back
Once you have taken a bank loan, you can't switch bank to HDB if bank rates suddenly rise above HDB's 2.6 per cent concessionary rate.
Overall, bank loan may seem attractive for short term financing or for people who are not eligible for the HDB concessionary loan.
However for long term tenure, it is best to get the HDB concessionary loan.
In Renotalk Forums: Hdb Loan Or Bank Loan
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