Many not aware of HDB loan cap but are OK with it

Many not aware of HDB loan cap but are OK with it
PHOTO: Many not aware of HDB loan cap but are OK with it

SINGAPORE - Pharmacist Michelle Ho and her fiance are planning to get a Housing Board flat but did not realise, until recently, that there is a cap on the number of years for which a home loan from HDB can be serviced.

Still, the 28-year-old said that this does not affect her as she and her fiance have already set their sights on a shorter loan tenure, involving them "forking out less eventually, in terms of interest".

Like Miss Ho, many young Singaporeans are not aware of the cap on the repayment period for HDB loans, but said it was not a problem as they prefer shorter loan periods.

This issue came to light after news broke last Friday that home loans from financial institutions, such as banks, will be restricted to a maximum tenure of 35 years.

Previously, home loans could have longer tenures, such as the 50-year home loan UOB introduced in August.

The latest rules apply only to new residential-property loans, and cover loans from financial institutions for both public and private homes. They are also separate from those governing HDB loans for public flats.

But the new rules for financial- institution home loans do share similarities with loans offered by the HDB, in terms of the repayment period.

The maximum repayment period for a HDB loan is 65 years minus the buyer's age, or 30 years, whichever is shorter.

Also unaware of the maximum repayment period for HDB loans were procurement executive Joycelyn Toh, 21, and her cook boyfriend Chang Chon Yee, 22.

Despite the cap, they said that they will still consider applying for a flat later as "having a substantial amount of savings is a priority", said Ms Toh.

Getting a flat later means the HDB loan tenure becomes shorter, so the monthly instalment on the loan gets higher, although less is paid out on the whole compared to longer loans, as less interest needs to be paid.

For engineer Darren Lee, 30, the new curbs on financial-institution home loans do not affect him and his fiancee because they are not planning to take up a loan for up to 30 years.

"It doesn't make financial sense to stretch beyond our own means," he explained. Mr Lee also said that impos-ing new curbs on long mortgages was a "timely move" by the Government to "weed out the cash-rich speculators from the market".

Last week's announcement on new property-loan curbs was also a reminder for sales promoter John Teo, 30, who is single, to apply for a HDB flat "as soon as I can".

"Doing so will allow me to have a longer period of time to repay the loans before I reach the retirement age of 65. Besides, the earlier I apply, the less I have to pay on average per month," he noted.

Singles can buy resale flats from the age of 35.

Announcing the new rules last week, the Monetary Authority of Singapore said less can be borrowed for financial- institution home loans with loan periods over 30 years, or beyond the retirement age of 65 years.

Instead of borrowing up to 80 per cent of the property's value, the amount drops to 60 per cent. This falls further to 40 per cent, if the borrower has an existing HDB loan or a financial-institution loan.

The remaining amount not covered by the home loan will have to be paid upfront.

Mr Nicholas Mak, research head of real-estate consultancy company SLP International, said that there are people who should not take up home loans with a long tenure.

These include those who have a tendency to spend a lot of their disposable income, and cash-strapped people who have no more cash reserves after spending it all on property.

People nearing their retirement age should also refrain from taking up long-term loans, Mr Mak added.

It all comes down to "financial discipline and responsibility", he said.

tsjwoo@sph.com.sg

This website is best viewed using the latest versions of web browsers.