Buying your first HDB is a milestone in life that many Singaporeans wish to achieve. But like every other…
We often face many dilemmas when it comes to making a decision about our personal finance. One of the greatest dilemmas that most Singaporeans will come across is deciding whether or not to refinance our hdb loan to a bank loan.
For those of you who aren’t familiar with refinancing, it is the act of getting a new home loan to replace your existing one to achieve a lower interest rate. There are two types of refinancing:
Based on our experience, the second type of refinancing is often easier. All you need to do is to find a better deal and switch over. Making a decision on the first type of refinancing is often harder because you can’t get back an HDB loan the moment you switch out of it.
So, we decided to write this article, which will help you break down what you need to consider when deciding whether it is worth refinancing your HDB loan to a bank loan.
Compared to bank loans, HDB loan are offered at a higher Loan-To-Value (LTV) ratio, i.e. 90% vs 75%. With a higher LTV, you can borrow more money from an HDB loan to finance your home, compared to a bank loan. This means that you do not have to fork out cash upfront for your home.
But when it comes to refinancing, the benefit of HDB loan becomes less pronounced since you have already made your down payment for your home when you first took the loan.
HDB loan offers a lot of flexibility for you to decide when you want to make a loan repayment. You can choose to service your loan for as long as 25 years, or you can choose to make partial or full repayment anytime between taking up the loan and the 25 year limit. You won’t get penalized for making any partial capital repayment under an HDB loan.
Interestingly, bank loans have also started to offer the option to make early repayment without any penalty. Plus, when you do any refinancing, you have the opportunity to make early repayment as well.
Most people perceive bank loan as the more expensive option when getting a home. Well, that was the case 20 years ago. But since 2009, the tables have been turned on HDB loan.
In the past decade, interest rates have been consistently kept low. While there were a few rate hikes in the past 2 years, interest rate on bank loan continues to be lower than HDB loan. Not to mention, interest rate appears to be going back down again as Central Banks around the world switch back into easing mode.
For now, both fixed rate bank loan (~2.20% p.a.) and floating rate bank loan (~2.05% p.a.) are offering much better interest rates than HDB loan (2.6%).
Every now and then, the banks will be fighting for customers to take up bank loans. To attract customers, banks will sometimes offer promotional interest rates to get you to make the switch. For example, DBS rolled out its 1.89% interest rate 3-year fixed rate package during the National Day 2019.
Besides the promotional interest rate, you might also get additional features on your loan package such as waiver of penalty and free conversion during lock-in. You never know when you might be getting a sweet deal, so make sure you keep a lookout for such promotions.
Too busy to keep track of promotions and bank loan deals? Why not let a mortgage broker do the hard work for you so that you can enjoy the promotional interest rate and features? Reach out to us here.
In addition, banks are now offering new promotions for you to bank more with them. For example, the three local banks (OCBC 360, UOB One and DBS Multiplier) offers promotional interest rate on your savings account if you bank with them under a few categories. Coincidentally, home loan falls under one of those category that can help you earn extra interest on your savings account.
Or alternatively, some safe solution as to where you can park your monies at instead
Now, the million dollar question, “Should you be refinancing from your current HDB loan to a bank loan?”. Overall, the key consideration should still be on the cost of your home loan and the remaining tenure. If the banks are offering lower interest rate and helping you keep the cost of your home loan lower, then it clearly makes more sense to switch over. Last but not least, if your remaining loan tenure is 10 years or lower, it makes alot of sense to take advantage of the low interest rate for the short term to pay down your home loan as soon as possible.
Still thinking about whether you should be refinancing from your HDB loan to a bank loan? Make your case known to us and let us advise you further