Should I Refinance My HDB Homeloan to a Commercial Bank?


Photo credit: choyaw99

The other day, another HDB home owner came to us checking on refinancing. They have been influenced by cheap rates that some people emphasize. We feel we have to explain the RISKS here.

1) All commercial banks require CPF to relinquish first charge when you switch your loan over to them.

WHAT IS FIRST CHARGE? (or FIRST RANKING)?

Let’s say you have been hit hard in life and have fallen. For example you owe some banks $200,000 and have sold everything and yet you cannot repay this debt. Under certain circumstances if the Bank have first charge, upon selling your HDB flat, the bank will take whatever money and interests owing to them. The remainder will be put back into your CPF. If there is any cash left over, it will be given back to you.

For example the HDB flat is sold for $300,000 and you CPF (used and with accrued interests) is $250,000. Upon any sale, this money automatically goes to your CPF ordinary account first. Nobody can touch this money. Even if you owe the bank $200,000, the bank can only take $50,000 ($300,000 – CPF $250,000). There is no way the bank can force you to pay back that money. That money is safely kept by CPF in your ordinary account for you to be used at your old age.

If the bank has first charge, the bank will first take the $200,000, and the remainder proceeds of $100,000 goes back into your CPF ordinary account.

Your retirement fund is DECIMATED!!!

Please note, you cannot choose CPF loans after you refinance out to a commercial bank. (see http://www.hdb.gov.sg/fi10/fi10207p.nsf/WPDis/Servicing%20Your%20Mortgage%20LoanPolicies?OpenDocument)

HDB

Refinancing Existing HDB mortgagors can choose to transfer their remaining mortgages to the banks if they wish to refinance their loans with the banks. Mortgagors who refinanced their existing HDB loan with the bank will not be allowed to refinance that loan with HDB subsequently.

So think twice, once you are out, you’re out!!!

HDB

SPR flat owners who have refinanced their HDB loan with the bank (as well as those SPR flat owners who had taken bank loans upfront for the purchase of their flat) also cannot refinance that bank loan with HDB after they have obtained Singapore Citizenship even if they are eligible for an HDB concessionary loan. Instead, they can enjoy the HDB concessionary loan when they next purchase an HDB flat, subject to their loan eligibility at the point of application.

Singapore PR flat owners, also take note.

HDB

Re-mortgage of HDB Flats

HDB flats can only be mortgaged to banks or financial institutions to finance the purchase. HDB owners are not allowed to use their HDB flat, which has been fully paid for, as collateral to raise credit facilities.

HDB flats have no equity and cannot act as collateral to raise money. The only way to raise money from a HDB flat is to sell and buy back another unit.

HDB RATES (CPF) ARE NO GOOD AT 2.6%?

On an apple to apple comparison, no commercial banks can give you a fixed rate for 5 years or 10 years or 15 years fixed rates at 2.6%. Long fixed rates are not common and they are expensive. The cheapest 10 year fixed rate packages are at least 5 to 6% in interest rate. HDB concessionary rates at 2.6% is extremely good!

Of course home owners can speculate that Sibor will stay low for the next 5 to 10 years and take the risk. But considering that the lowest 10year SIBOR rate is about 0.57%, with banks lapping on a lending margin of at least 0.8 to 1.1%. The effective rate (illustrative) for SIBOR + 1% = 1.57%

Interest rates cannot go negative, therefore the lowest theoretical rate is 1% and Sibor does fluctuate. As recent as 2007, Sibor was at around 4%.

So you tell us, and you decide if you still want to proceed.

SO WHEN SHOULD I CONSIDER SWITCHING OUT OF HDB LOAN?

The only reason is if you are eyeing a private property already. Because HDB home owners who buy a private property will need to refinance their HDB to a commercial bank.

HDB note: (see http://www.hdb.gov.sg/fi10/fi10207p.nsf/WPDis/Servicing%20Your%20Mortgage%20LoanPolicies?OpenDocument)

HDB

Refinancing Existing HDB mortgagors can choose to transfer their remaining mortgages to the banks if they wish to refinance their loans with the banks. Mortgagors who refinanced their existing HDB loan with the bank will not be allowed to refinance that loan with HDB subsequently.

You cannot refinance your HDB back to HDB subsequently. BEWARE!!!

Home owners may tactically decide to act first and lock in favourable rates in anticipation of buying a Private property. That is fine.

HDB TRACK RECORD

HDB has a better track record of being more benevolent than commercial banks in cases of repayment defaults. If you default on your HDB loan with a commercial bank, you would almost certainly be evicted and your HDB flat will be put onto the market for sale.

We urge all HDB home owners not to fall prey to cheap loans. Such loans and refinancing offers irresponsibly put home owners at risk of not only future possible higher rates, but also put them at risk of losing their homes in the case of a default of repayment to the commercial bank.

We at www.PropertyBUYER.com.sg do not want such deals!!! Even if it means we make less money. Unless you truly understand the risks and still want to do it.

Paul Ho is a honest and reliable mortgage advisor working with PropertyBuyer. For any property mortage advices, feel free to contact him.

Written by Benson Koh
Benson Koh is a professional real estate realtor with over 11 years of experience specializing in all forms of real estate consultancy and brokeraging of different segments from regal homes to commercial spaces. Also a boutique developer, he manages bothSRI5000 Developments which concentrates on landed homes as part of his land bank segment and Singapore Realtors Inc (SRI), a real estate agency which has over 7 years of group experience. You can reach him here via various channels. [ Facebook | Linkedin | Twitter | RSS Feed ]