HDB Home Loans 101

Singapore HDB Flats

 

What is HDB?

HDB is the short abbreviation for Housing Development Board. HDB is responsible for public housing in Singapore and about 80% of the Singapore’s population stay in a HDB flat.

 

The HDB Home Loan

In Jan 2006, HDB opened up the financing options allowed for home owners and allowed financial institutions to finance their HDB flats.

The Housing and Development Board (HDB) provides HDB home buyers housing loans at concessionary interest rates financing at 2.6%. However since 2008, when the United States Federal Reserve cut interest rates to record low of 0% ~ 0.25% to stimulate the economy, Singapore’s financing interest rates have also fallen dramatically in tune with the US interest rates.

The Singapore financing interest rate SIBOR closely tracks the US interest rate as Singapore employs a Foreign Exchange rate policy to manage its monetary policy given Singapore is an export based economy.

Given current low interest rate environment, many banks are now able to offer market pegged or fixed rates financing at about ~1.5% which is lower than concessionary HDB Home Loan provided by HDB.

 You enjoy great savings by taking a Bank HDB Home Loan vs Housing Development Board HDB Home Loan, but given that banks are private business entities, they may be less forgiving if you are late or misses out on your monthly repayments.

A quick computation of a typical financing home loan offered by banks at around ~1.5% over HDB Board concessionary 2.6% shows a reduction of about 42%  savings in interest rate.

 

HDB Mortgage Insurance

People generally get confused over the home fire insurance and the home mortgage insurance. They are two separate insurance. The fire insurance provides insurance coverage against a fire event while the mortgage insurance provides insurance coverage against personal death, total permanent disability. The Mortgage Home Insurance provided by the CPF Board is called the Home Protection Scheme (HPS) while private insurance companies have different names for it. Some call it Mortgage Insurance, Mortgage Reducing Term Insurance, Mortgage Protector.

Overlooked by many, Mortgage Insurance is a very important integral structure of your home purchase and protects you and your love ones from the financial liability in the event that something uneventful happens.

For comprehensive coverages, always include mortgage insurance as a part of your insurance and financial planning needs. In any case, if you have bought a HDB flat using any CPF monies, CPF Board would require you to buy the Home Protection Scheme Mortgage Insurance on a compulsory basis. Purchase of mortgage insurance coverage for private propery home loans are not mandatory.