How much can you save by refinancing your HDB loan?
If you are a first-time HDB Build-To-Order (BTO) flat owner, chances are that you took up an HDB Concessionary Loan. After all, with the lower cash down payment requirement and convenient application process, it’s the default option that most Singaporean HDB buyers opt for.
But should you refinance your HDB loan? Refinancing may be a good idea to save some money, especially if you intend to stay in the same flat for a few more years. With banks currently offering a lower interest rate than the HDB Concessionary Loan, it might make financial sense to refinance your home loan with a bank loan for your HDB flat. What do you stand to gain or lose?
|HDB Concessionary Loan||POSB HDB Loan|
|Interest||CPF Ordinary Account interest rate (2.50% p.a.) + 0.10% p.a.||2.00% p.a. fixed interest for first 5 years|
|Early repayment||No penalty||No penalty|
|CPF usage||For monthly repayments||For monthly repayments|
When should you refinance your HDB loan?
As a savvy homeowner, you should always be on the lookout for loans that are offering lower interest rates. After all, lower interest rate means more disposable income, which you can channel into your savings, travel fund or even retirement fund. So, if you don’t intend to move to a new place anytime soon, refinancing could be a good way to save some money.
Did you know, by refinancing from a HDB Concessionary Loan to a bank loan that offers a lower interest rate, you can save about S$1,212 every year on your monthly repayment? In 5 years’ time, you would have saved a tidy sum of S$6,070 – all because you made a simple switch.
When might refinancing be a bad idea?
Refinancing might possibly be a bad idea under these few circumstances:
- Situation 1: You somehow switch to a loan with higher interest rates
- Situation 2: There are penalties to repaying your loan early
- Situation 3: There are expensive switching costs when you refinance
It is unlikely that you choose to refinance to higher interest rates. And with a HDB loan, there are no early repayment penalties. So, that leaves us with Situation 3.
With a POSB loan for your HDB flat, switching costs may be less of a worry. That’s because a refi of at least S$200,000 comes with cash rebates that helps to subsidise your legal and valuation fees.
But that’s not all. The POSB HDB Loan comes with complimentary insurance coverage for 6 months. In the event of a sudden loss of income or an unfortunate event, you will be financially protected by POSB’s Home Payment Care. It can help you pay up to 3 monthly home loan repayment (capped at S$2,500 per month) or up to S$30,000 in lump sum benefit.
Enjoy benefits, not penalties.
Is it worth it to refinance your HDB loan?
Taking up a POSB HDB Loan also gives you the opportunity to earn higher interest rate on your savings account. When you make use of POSB’s home loan, you can maximize the multiplier effect on in your Multiplier account. Here’s how.
Let’s say you are already crediting your salary (S$4,000) into a POSB account and spending S$500 on your credit card every month. At this stage, you qualify for a 1.85% p.a. interest rate on your DBS Multiplier account.
By switching your home loan to POSB, you can earn 0.35% p.a. more in interest rate on your Multiplier account. If you have S$50,000 in your savings account, this works out to an additional S$175 a year.
Greater multiplier effect means more money for you. All you need to do is to switch to a HDB home loan with POSB. It is that simple.
Why pay more when you can get a better deal?
While it may be convenient to let your HDB Concessionary Loan run its course, it isn’t the most financially savvy move. A quick back-of-the-envelope calculation will reveal some very practical cost savings through refinancing. Our advice? Do the math and make your savings count.