19

voices

TODAY MONDAY 30 SEPTEMBER 2013

EVERYONE CAN BE FINANCIALLY SAVVY

A smarter way to manage your mortgage

FROM POSB EXPERT LUI SU KIAN Head of Deposits and Secured Lending

POSB HDB LOAN BENEFITS

Interest rates are guaranteed to be lower than HDB concessionary rates as it is pegged to SIBOR with a cap at CPF ordinary account rate for eight years. It is the longest capped interest mortgage offering in Singapore. No prepayment fee.

IS IT BETTER TO TAKE A HOUSING LOAN FROM A BANK OR HDB?

It depends on where your priorities lie. More homebuyers are exploring options that let them benet from the current low interest rate environment instead of subscribing to the HDB concessionary rate of 2.6 per cent, which is higher than what most banks are offering for xed-rate mortgages. If initial cash outlay is a concern, consider a loan from HDB as you can fund your entire downpayment with your CPF money. If you nance your

flat with a bank, set aside an initial cash downpayment starting from 5 per cent. Some homebuyers appreciate the ability to reserve funds in their CPF accounts to help pay their mortgages during rainy days. HDB nancing requires you to fully utilise your CPF Ordinary Account (OA) balances, which means your ability to use CPF funds as a cushion against unexpected loss of income may be restricted.
WHAT OPTIONS DO I HAVE TO HELP SAVE ON REPAYMENT YET PROVIDE SECURITY AGAINST RISING INTEREST RATES?

help you save on interest payments as it is pegged to 3-month SIBOR, which is signicantly lower than the CPF OA rate. Think of it as our way of helping to protect your interests. Since the POSB HDB Loan interest rates will not rise above HDB concessionary rate for eight years, it is the best bank nancing option that helps save on interest while enjoying stability that is closest to the HDB Concessionary Loan. You also enjoy more flexibility as there is no penalty for prepayment, so you have more choices when it comes to managing your HDB home loan.
WHO CAN BENEFIT FROM THE POSB HDB LOAN?

Many of our customers are bracing themselves for interest rates to rise. A product like the POSB HDB Loan can

The POSB H DB Loa n benef its

many HDB at buyers and owners, including buyers of HDB resale flats, HDB homeowners looking to refinance, and HDB homeowners with Built-to-Order flats nearing completion. If youre planning to upgrade, consider the POSB HDB Loan as it offers a guarantee for the next eight years.

More than just a home loan

Renancing your housing loan may help you lower your mortgage payments and manage your nances better
Buying a home is a major decision that will have a signicant impact on your future nances. Many of us will need to borrow from a nancial institution or bank like POSB in order to afford a new home, and servicing that loan will be a nancial commitment that usually lasts for 20 years or more. Homeowners who review their home loan packages every few years may be able to save a substantial amount by re-pricing or renancing their home loan. Re-pricing involves getting a better rate from your existing lending bank, while renancing means you switch to a different bank to enjoy a more attractive interest rate.
FINANCIAL PLANNING

when calculating whether renancing will help you save money. Another way to lower your monthly payments without renancing is to extend the tenure of your existing loan. This lets you reduce the amount you pay every month, but not the overall cost of the loan. It would result in a higher amount of total interest paid than a shorter tenure loan.
ADD IT ALL UP

Banks have several home loan packages so there is plenty of opportunity for a vigilant borrower to switch to a better package, especially when low promotional rates for the rst two to three years of a loan are replaced by higher ones from the third or fourth year onwards. Most bankers will advise borrowers to consider renancing at this point. A product like the POSB HDB Loan offers interest rates that are capped for eight years at a rate that is at least 0.1 per cent lower than the HDB concessionary interest rate. This has, in a sense, seen the bank come full circle, as POSB was the rst bank in Singapore to offer HDB home loan nancing in 1974 through its Credit POSB subsidiary

We encourage customers to review their mortgage periodically as part of their financial planning to optimise their household budget, said Ms Lui Su Kian, Head of Deposits and Secured Lending, DBS Bank. Homeowners should consider renancing as an important aspect of nancial planning, as it can lead to lower monthly repayments.
BORROWING FROM THE HDB

Although there are numerous home loan packages with lower interest rates on the market, many HDB homeowners opt for HDB concessionary loans, which is currently at 2.6 per cent. A key reason is that the downpayment for a HDB loan can be made entirely with CPF savings and homeowners can borrow up to 90 per cent of the purchase price, compared to 80 per cent for bank loans. Many homeowners also view an HDB concessionary loan as an extension of the process of buying an HDB at. Sometimes homeowners may make some erroneous assumptions

about taking an HDB loan. Some may think that the HDB will not repossess their at if they fall behind on payments. While the HDB does try to help everyone, it does repossess ats under certain circumstances. Another misconception is that HDB rates are xed throughout the loan tenure. While its true that HDB interest rates have remained at for an extended period of time, these HDB rates are actually oating rates pegged to the CPF Ordinary Account rate.
WEIGH YOUR OPTIONS

PHOTO: THINKSTOCK

Whatever package you choose to nance your home, always remember to buy something you can afford in the long run. Apart from monthly mortgage payments, there are other expenses such as property taxes, re and mortgage insurance, conser vancy and management service fees that cannot be paid for using CPF savings. And if you are taking out a oating rate loan, you will need to take into account the possibility of rising interest rates bumping up your monthly payments. You need to set aside enough cash to cover these home-related costs as well as meet your own living expenses and other nancial commitments.
This is the four th stor y in a 19 - par t collaboration between TODAY and POSB.

Before deciding which is more suitable a bank loan or HDB concessionary loan there are some things you should note. Some loans have a lock-in period that will result in a penalty if you renance before this period is over. Apart from the early repayment penalties, you must also be aware of new fees that you will incur when you sign up for a new loan, such as legal fees. Consider these additional costs

Homeowners should consider refinancing as an important aspect of financial planning, as it can lead to lower monthly repayments and increase your gains when you sell your house.

DONT OVERLOOK THESE FACTORS

Check the duration of the lock-in clause. There may be a penalty if the loan is renanced before the lock-in period is up. Additional costs like legal fees. Check whether new regulations such as the Total Debt Servicing Ratio or cap to loan tenure apply to you.