Wednesday, August 7, 2013

Should HDB owners take a private property loan?

Assuming a HDB home loan of  $350000 to be paid back in full in 30 years at the HDB loan rate of 2.6%.
Total payment after 30 years = $504,428.04. 
Interest paid after 30 years = $154,428.04
Assuming a bank loan instead to be paid back in full in 30 years at the following rates : 1.2% first year, 1.45% second year and 1.95% thereafter. (Based on 3-month Sibor + 0.5%, 3-month Sibor + 0.75% and  3-month Sibor + 1.25% from a local bank).
Total payment after 30 years = $457,747.21
Interest paid after 30 years = $107,747.21
By taking a HDB loan, the customer actually pays $46,681 in interest more over 30 years.
(I have excluded the miscellaneous cost, such as legal fees e.t.c, focusing on interest only. )

Reasons for taking a HDB loan is that HDB is more lenient and you can miss a few payments. (From hearsay)Taking a bank loan is a one way street and you lost the chance of taking a HDB loan forever. 

It makes me wonder whether if you miss payments on a bank loan, can the bank take back your HDB given that it is actually the property of the government and HDB owners are not actually owners but long term tenants with a lease period of 99 years. Maybe the difficulty could be so onerous for the bank that one could be allowed to miss a few payments too.(Maybe)

Especially when interest rates have been so low for so long but the prospect of it rising is a real possibility but when it finally do rise above the 2.6% rate, your outstanding balance would be so small that a lump sum could be paid to settle it. Think about it.

7 comments:

  1. Very nice info. Thanks for sharing!

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  3. HDB owners definitely should take a private property loan nowadays when interest rates are so low.

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