Monday 1 April 2013

New HDB Loan Option from POSB?




With reference from Channel NewsAsia, starting April 1, there will be a new loan option for HDB home buyers. The new POSB HDB Loan will offer a floating interest rate capped below the HDB's concessionary rates for ten years.

The HDB concessionary interest rate is pegged at 0.1 percentage point above the prevailing CPF interest rate. DBS said the POSB HDB Loan allows buyers to benefit from the current low interest rates and at the same time, gives a ten-year protection against rising interest rates.

Click to read the full report .

Effectively, what alternative does this new loan option present to the market?

The rates for this option can be likely 0.3 per cent to 0.6 per cent higher than what's in the market rate, but the compromise is there is an interest rate cap at the CPF Ordinary Account level.

Quoting an example of 1.7 per cent market rate, the initial loan per cent might be anything between 2.0 to 2.3 per cent but capped to the CPF OA level of 2.5 per cent.

This is certainly attractive when placed in direct comparison with HDB's current concessionary of 2.6 per cent, which is pegged to 0.1 per cent on top of the CPF OA interest rate. Not forgetting POSB HDB Loan is also giveing a ten-year protection against rising interest rates.

However, loan takers do have to bear in mind the initial minimum higher cash layout of 5% of property valuation and the long term commitment they have to make towards a bank loan.

Ultimately, this new POSB HDB Loan does offer an interesting alternative to loan seekers and I'll be glad to discuss further or introduce a POSB mortgage banker if you can drop me an email.