What is a home loan?
HDB loan or home loan is a loan from HDB or a bank to help you buy a property. If you buy a HDB flat, you can also get a home loan at a preferential interest rate according to HDB's criteria.
If you get a home loan, your property will be the collateral for the loan and the amount of loan granted is based on the eligibility of the purchaser.
After the down payment, the installment loan pays the remaining purchase price to the seller and interest is charged from the first repayment.
What are the reference criteria for granting loans by the HDB and banks?
Minimum monthly income.
The minimum and maximum age of the buyer.
Loan amount.
Resident status.
Satisfaction of MAS mortgage regulations and HDB or bank internal credit requirements.
If you are self-employed or do not have a regular income, you must demonstrate your ability to make monthly instalments to qualify for a loan.
Each lender will assess your eligibility for a loan based on their own criteria.
HDB only offers preferential loans for HDB flat buyers at a fixed interest rate of the current CPF Ordinary Account Rate plus 0.1%, this rate varies according to the CPF rate.
If you take a loan from a bank, there are two main types of home loans, fixed rate loans and variable or variable rate loans.
With a fixed rate home loan, the rate is fixed and stays the same for the first few years. This rate will not change even if market interest rates fall, but after the rate lock period, the interest rate will change.
With a variable or variable rate home loan, the interest rate changes and is usually tied to a reference rate. For example, the CPF general account, SIBOR, SOR or the interest rate determined by the bank.
If the reference rate rises, the interest payable will increase. And vice versa.
The reference rate may change from time to time depending on current market conditions. Banks must notify you in advance before changing the interest rate on your home loan.
To better understand the differences between the various bank loan portfolios, please discuss them in detail with your bank.
Of course, you may consider paying off your mortgage early in one lump sum to reduce your monthly payments and save on interest in the long run. However, be sure to see if there are any penalties.
Check the HDB Loan Eligibility Letter and Fact Sheet for more detailed information about your mortgage.
To find out if you qualify for an HDB loan and how much you can borrow, you need to apply for an HLE with the HDB.
The HLE will provide you with information about how much you can borrow, your monthly repayments, how much cash you need to hold, and other terms and conditions to help you plan when you buy a home.
Before you apply for a mortgage from the bank, the bank must provide you with a Fact Sheet.
The information sheet highlights how possible interest rate increases will affect your monthly installments and contains key points about the loan, including:
- Loan amount and term.
- Total repayment amount.
- Lock-in period.
- Interest rate and repayment schedule.
- Explanation of interest rate changes.
- Effective interest rate.
- Penalties.
Ask your bank to walk you through the basic information sheet for your mortgage in detail and make sure you know what kind of financial commitment you are making when you accept the loan.
If you can't make your monthly payments, contact your mortgage holder as soon as possible. HDB may be able to advise you on better alternatives and your bank may be able to help you restructure your loan.
Your home loan is secured by your property. If the loan defaults, HDB or the bank will become the first mortgagee.
If you use your CPF savings to make a down payment or pay off your loan, the CPF Board becomes the second mortgagee on your house.
If you fail to pay your home loan when it is due, the HDB or bank has the right to sell your home under the first mortgage and use the proceeds of the sale to repay the money you owe the bank.
The CPF Board is entitled to the remaining proceeds of the sale to recover the amount deducted from your CPF account.
