Explaining a Flat Rate Loan

Explaining a Flat Rate Loan from Property Buyer Singapore

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Home Loans With Different Rests: Creating Their Amortization Schedule

Home Loans With Different Rests Creating Their Amortization Schedule from Property Buyer Singapore

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If Your Home Loan is Turned Down, ...

If Your Home Loan Is Turned Down from Property Buyer Singapore

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Explaining the Advantages of HDB Loans versus Bank Loans

Explaining The Advantages of HDB Loans Versus Bank Loans from Property Buyer Singapore

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Explaining the Advantages of HDB Loans versus Bank Loans

by SUSAN TEO

Before 1 January 2003, people buying a HDB (Housing Development Board) flat have to finance it either with a HDB Concessionary Rate Loan or a HDB market rate loan. But since then the HDB market rate loan was replaced by home mortgage from financing institutions, which are gazetted by the Monetary Authority of Singapore.

HDB Concessionary Rate Loan 

Compared to a home loan from a financing institution, a HDB loan has more stringent eligibility requirements. The below covers most of them.   

Eligibility Criteria:

• For HDB flats only (resale or direct purchase from HDB)

• At least one buyer must be a Singapore citizen

• Must have a gross monthly income not exceeding $10,000 (or $15,000 for extended families)

• For DBSS flat the income ceiling is $8,000 (or $10,000 for extended families)

• For applicants under the Single Singapore Citizen (SSC) scheme, the income ceiling is $5,000

• Must not own any private residence (in Singapore or abroad), including HUDC and executive condominium

• Must not have sold a private residential property within 30 months and taken a HDB loan before

• Must not have previously obtained a HDB loan within 30 months

• Must not have taken more than two previous HDB loans

• Must not own more any market / hawker stalls or commercial / industrial property (Except if you operate the business yourself, have no other source of income, and only own one market / hawker stall or commercial / industrial property)

From July 2013, HDB loan will not be granted for flats with less than 20 years of lease. In addition, for flats with lease between 20 and 59 years, loan approval and tenure will be subjected to certain conditions.

Given the many restrictions of a HDB loan, why then do Singaporeans still want to take one? We delve further into the pros of this loan in the following sections.

1. Higher CPF (Central Provident Fund) withdrawal limit 

For financing by bank loans, the CPF Ordinary Account withdrawal cap is up to 100% of the valuation limit (VL), which is the lower of the purchase price or valuation at the time of purchase. If the loan is still outstanding when this limit is breached, the housing withdrawal limit can be increased to 120% VL provided that half (entire) of the prevailing Minimum Sum is set aside for borrowers below 55 (55 and above). This housing withdrawal limit varies with the purchase date of the flat, for purchases from 2008 onwards it is 120%.

With a HDB concessionary loan, however, you can enjoy a higher withdrawal limit.

For direct purchase from HDB, there is no limit to the saving in the Ordinary Account you can use.

For resale HDB flats, there is no limit to the saving in the Ordinary Account you can use, after you have set aside half of the prevailing Minimum Sum.

But from July 2013 onwards, for flats with leases between 30 and 59 years the use of CPF fund is allowed only if the remaining lease covers the buyer till at least 80. For such flats, the withdrawal limit will be computed based on the below formula:

Withdrawal Limit
 = (The remaining lease of flat or property when the youngest owner is 55 years old / The lease of the flat or property at the point of purchase) x VL

For example, at the point of purchase the buyer is 38 years old and the lease is 40 years. When the buyer turns 55, the remaining lease will be 23 years. Hence

Withdrawal Limit = 23/ 40 x VL

Table 1 further illustrates what is VL.

Table 1: VL

	Flat A	Flat B
Purchase Price (S$)	400,000	370,000
Valuation (S$)	350,000	420,000
VL (S$)	350,000	370,000

For flats with under 30 years of lease, use of CPF fund is prohibited. In other words, buyers will to cough up cash for the down-payment, monthly repayment of the loan, stamp duties and other miscellaneous fees.

2. No cash component required for the down-payment 

A key advantage of a HDB loan is that you do not have to stump up any portion of the down-payment in cash. You are allowed to use the balance in your CPF (Central Provident Fund) Ordinary Account to pay for it completely.

Whereas with a bank loan, you will have to pay at least 5% of the Valuation Limit (VL) in cash. If the loan tenure exceeds 30 years or extends past the age of 65, the minimum amount jumps to 10%.

3. Higher loan quantum 

For the first HDB Concessionary Rate Loan you are taking, the loan quantum is as high as 90% VL. In contrast, for bank loans, the quantum is capped at 80% LTV (loan-to-value ratio). It dips to 60% if the loan tenure exceeds 30 years or extends past age 65. Table 2 compares the down-payment components and loan ceilings for HDB and bank loans.

Table 2: Payment Structure for a HDB Flat

	Down-payment
	Cash Component	CPF Component	Maximum Loan Quantum
HDB Loan	≥ 0% of VL	First 10% or more of VL*	≤ 90% of VL**
Private Loan without*** Outstanding Mortgage AND• Loan tenure does not exceed 30 years; and • Sum of loan tenure and age of borrower at the time of applying for the loan does not extend beyond retirement age of 65 years.	≥ 5% of VL	Next 15% or more of VL*	≤ 80% LTV
Private Loan without Outstanding Mortgage AND• Loan tenure exceeds 30 years; or • Sum of loan tenure and age of borrower at the time of applying for the loan extends beyond retirement age of 65 years.	≥ 10% of VL	Next 30% or more of VL*	≤ 60% LTV

Source: HDB (http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/HLHDBWhat?OpenDocument) Monetary Authority of Singapore (http://www.mas.gov.sg/~/media/resource/news_room/press_releases2013/Annex%20II.pdf) MoneySENSE (http://www.moneysense.gov.sg/en/Life-Events/Buying-a-Home.aspx)

*Do note that there is a limit to the CPF amount you can use for mortgage financing, as discussed earlier in the article.
** This loan quantum only applies to the first HDB Concessionary Rate Loan. The loan quantum for the second HDB loan will be reduced by the full CPF proceeds and part of the cash proceeds made from the sales of the previous flat.
*** Since buyers are not allowed to own more than 1 HDB flat concurrently and must dispose of their private residential properties within 6 months after buying a HDB flat, technically there shan't be a case with an outstanding mortgage.

New regulations, that have kicked in from 12 January 2013, dictate that the mortgage servicing ratio (MSR) for private loans must not exceed 30% of the gross monthly income of the borrower and 35% for HDB loans. So do note that to be eligible for the maximum loan limits stated in Table 2, you also have to meet the MSR cap.

Effectively, this can translate into a lower loan quantum for a bank loan compared to a HDB loan. For example, for a 30-year loan with a 80% quantum for a S$800,000 HDB flat, at an interest rate of 1.5% p.a., the monthly repayment amount will be S$1,932.67. In order to be eligible for a

• HDB loan: Gross monthly income ≥ S$5,521.92

• Private loan: Gross monthly income ≥ S$6,442.24

Thus, if your income is below S$6,442.24, you will not be eligible for a private loan of 80% LTV. If you extend the loan tenure, current rules mandate that you can only take up to 60% LTV.

Therefore, a HDB loan will allow a higher loan quantum.

4. HDB is more lenient 

As a Government agency which main goals are to provide affordable quality housing and encourage home-ownership, HDB tends to be more tolerant of delinquent borrowers.

But for a loan from a financing institution, you are always required to pay the monthly stipulated amount even if you have suffered a pay cut.

Further, HDB usually grants deferment of monthly installment payment if you have fallen into financial hardship. The banks, on the other hand, will likely be hot on your heels if you defer payment even for a day!

5. No penalty for partial or full repayment of loan, interest rebate given instead  

Of note, is that HDB imposes zero penalty for partial or full repayment of its loan.

Most mortgages of financial institutions, however, come with a lock-in period (aka commitment period) typically of 3-5 years. During this period, any repayment above the prior agreed amount will result in a penalty - usually at most 1.5% of the repayment amount. Financial institutions profit from the interest incurred on the loan, any partial or full repayment of the loan means a loss on interest earnings. Hence, the penalty helps to compensate for this loss.

In fact, HDB even reward you for making capital repayment. Interest rebates will be given on any amount of capital repayment made by flat owner from the next following day after payment is received. The rebate is calculated based on the below formula:

Interest Rebate = (Amount Repaid x Interest Rate) / 12 x 1/ No of Days in the Month x (No of Days in the Month – Day in which Amount is Repaid)

To illustrate

• HDB Interest Rate = 2.6% 
• Capital Repayment = $1,000 on 20th Mar 2013 
• No of Days in March = 31 

Interest Rebate = (1000 x 2.6% ) /12 x 1/ 31 x (31 – 20) = $0.77

6. Stability in interest rate 

Since revision to the interest rate of a HDB loan is made quarterly in tandem with changes to the CPF rate, which has been the same for over 10 years. The interest rate has, likewise, remained stagnant. A HDB loan, thus, offers relatively more stability than even a fixed-rate mortgage which rate is only fixed for 3- 5 years. This is not saying that there have been no fluctuations in HDB interest rates. For instance, in the 1990s rates demonstrated more volatility (Source: CPF, “Historical HDB Concessionary Interest Rate”).  

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Home loans for Indonesians up to 75% without proof of income in Singapore

Who should read about asset based lending?

For Indian citizens earning above 8k a month in SGD equivalent in their home country buying a property in Singapore or refinancing a property for Maximum Singapore dollar CASH, so that you can invest in better yield.

It is also extremely powerful for: -

Singaporeans earning a joint income above 8k a month and buying a second property, but who already has several financial commitment, this scheme is able to gracefully over-look the other commitments.

For Singaporeans buying their 1st property, and able to put down a 25% downpayment. The loan quantum available to them can be substantial, allowing them to leverage highly.

Singapore Banks Asset Based Lending Criteria

What about the criteria for Asset Based Lending Mortgage?

Most banks in Singapore lend based on criteria such as debt to servicing ratio. The usual debt servicing ratio is capped at 50% to 60%.

This 50% to 60% debt servicing ratio is what the bank would lend at the maximum, not a financial planning guideline.

Only some banks in Singapore will do asset based lending for your property with minimum income.

Asset based lending is rare. Banks see it as risky. Most often, banks need you to put assets under management (AUM) of $250,000 or 24 months of repayment amount (whichever is higher), plus income level.

Typical Singapore Asset Based Lending

Someone with a fully paid up property valued at $3.2m. He goes to the bank to borrow 50% of $3.2m. He gets $1.6m in cash for an equity term loan (Cash out). The bank will usually want to see proof of liquid assets of 24 months of the installment amount.

illustration of a scenario: -

Age of owner = 50 years old

Property valuation = $3,200,000

Loan to value = 50%

Loan tenor = 20 years

Interest rate = 1.5%

Loan amount = $1,600,000

Monthly Installment = $7,720

In this scenario, the owner would most likely be asked to show proof of 24 months of monthly repayment in liquid assets of $185,280.

A Better asset based lending loan structure in Singapore

This type of Asset Based Lending goes up to 70% or 75% of the loan-to-valuation.

This type of asset based lending with high Loan quantum is good for Singaporeans buying 2^nd or 3^rd properties. This structure is also good for Foreigners refinancing their paid up property for CASH OUT.

Scenario: Indonesian, 50 years old, paid up property, earns $25,000 SGD worth of income, but in his own country.

Property Valued at = $6,000,000

Status = Fully Paid up

Loan-to-value of = Can to up to 70% (up to 75% subject to approval)

Loan tenor = up to 25 years

Loan amount = $4,200,000

He will be eligible to borrow up to $4,216,000 based on his asset and some proof of income instead of $2,529,000.

Most rich people have a lot of money, but they like to borrow money, because using other people’s money is a way to grow rich. His borrowing quantum goes from $2.529m to $4.216m. Cash is freed up at cheap cost (housing loan borrowings are the cheapest form of borrowing) to invest in higher yielding assets.

Here are the facts of this loan

Age = up to 75 years old

Tenor = up to 40 years

Min Income of $8,000 joint income

Documents required for Asset based lending

NRIC = front and back copy. (For foreigners who are NON-PR, copy of passport)

Income = Proof of income via Company letter only (or alternative proof)

As long as income certified by Financial officer or Human Resource, it is recognized

OR

3 Months salary slip

OR

2 years of Notice of Assessment (NOA) – from IRAS.

Existing home loan balance (if any)

= 6 months to 12 months bank statement showing outstanding loan amount. (if fully paid, copy of title deed)

Option to purchase = Required for a New purchase of a completed property. (Not needed if

refinancing)

Contact : loans@propertybuyer.com.sg

Mobile (sms) : +65 9782 8606

Get Asset Based Lending home loan

Get Asset Based Lending Refinance Home Loan

If you are a Singapore Mortgage Broker, do contact us, we will avail this to you and your clients. (Only for Mortgage Broker and Consultants)

Analysis of reducing HDB lease to 66 years?

We are not amused with the suggestion to reduce HDB lease. From what we gathered, increasing land price is a government policy set in stone.

Singapore has already embarked on Land productivity measures since 2007. (see links below)

(Source: http://www.scribd.com/doc/33276827/Economic-Strategies-Sub-Committee-Maximizing-Land-Value and http://www.asiaone.com/Business/News/My+Money/Story/A1Story20100222-200190.html)

Land productivity is a measure of how best to use land. And the best way to determine how to use a land is of course by who can afford to pay the most for it. Whoever pays the most is naturally assumed to have higher land productivity since they can afford the higher rates, hence they must be making a decent returns from running their business.

For example, a coffee shop at a neighbourhood coffee shop that sells you a 70 cents coffee. They may be low productivity. So if the government release another plot of land and a coffee shop chain bids a very high price for the land and wins the bid, then how will they improve productivity? (Low cost, increase coffee making speed, sell more coffee for same price or sell coffee for more price). And we suspect you guessed correctly, Singapore's government policy will lead to increased cost of living.

In order for land productivity to materialize, Singapore government must constrict land supply only until the best possible price. The Singapore government should produce less supply than there is demand, so that HDB prices and hence land prices can go up.

When land prices go up, then more revenues can be obtained, either via HDB or through various land holding/owning authorities. This is good for the country's coffers.

An average Singaporean has a huge housing loan interest burden and generally pays it off over 30 years.

HDB studio retirement flats with 30 years lease

In the past, the HDB has tried to create a sub-class of HDB flats (Still effective as at today) which are only 30 years lease. HDB tries to create a precedent and hopes that people will gradually accept 30 year land lease via the Lease and Buy back Scheme. On the surface, it seems like a great plan for retirees who are short of money, but in reality, due to the CPF used (with accrued interest), most of these retirees who let go of their normal 3-4-5 rooms HDB to go into such “Studio” and 30 years lease HDBs will have most of their money locked up by CPF, part of the money realized will go into an Annuity with CPF Live.

(http://www.hdb.gov.sg/fi10/fi10325p.nsf/w/MaxFinancesOverviewLeaseBuyback?OpenDocument)

People are buying in flats that are very costly on a Per sq feet per year basis.

For example a 99 years flat with 1200 sq feet cost $450,000. That works out to a $375 psf per 99 years.

• Or $3.79 per sq feet per year.

• Or $4,545 per 1200 sq feet per year.

Say for example, a 30 year flat with 500 sq feet cost $120,000. That works out to: -

• $8 per sq feet per year. (way more expensive than that of a 99 year lease)

In another scenario

In another scenario, the government offers a buy back of 40 years from a 70 years lease at $104,000 (valued 236,000 of 70 years ? 40 years should be 40/70 x 236,000 = $134,857), But the government offered much less, thereby “making” $30,857 from the poor HDB home owner. $30,857 can go a long way towards having a better retirement for these poor folks.

[caption id="attachment_750" align="aligncenter" width="645" caption="HDB lease and buy back scheme"][/caption]

Of course, this offer by HDB is optional. We see this as a very BAD deal and urge home owners to reject it.

Unfortunately, those people who are in those situation may not even have a computer, much less internet access, thereby possibly succumbing to a bad deal as they do not have enough knowledge.


(Source: http://www.hdb.gov.sg/fi10/fi10297p.nsf/ImageView/CORPORATE_PR_05032010_LBS_ANNEXA/$file/Annex+A.pdf)

Private developers buy FreeHold land and sell it as 103 years lease hold land

These buying of FH land and selling it as 103 years lease hold land is allowed under the common law.

These reduces the supply of FH/999 land and makes lease hold land more the norm for eventual gradual acceptance.

SMALLER UNITS BELOW 500 SQ FEET (Mickey mouse units)

With the reserve list bidding deposit dropping from 5% of bid price to 3%, this means that developers will likely bid higher for the land. There is also a cap of $5m on the bid deposit allowing more developers to participate.

(Source: http://www.ura.gov.sg/sales/reservelist/faqrlq11n12.html)

This means that developers wanting to stay in business will have to bid higher prices to win the land bids. As the population has limited income and affordability, in order to make money from their very high land bids, they will have to build houses smaller and sell at a higher per square feet price.

Recent trends indicate that Singapore Government has started land productivity

The land productivity measures by the government points the way towards making land more expensive on a per square feet per year basis. We have seen various measures to vary the land lease, vary the size or impose regulations, all trying to check what sticks.

Implications of Singapore’s land policies

There should be a class of land that the Singapore government provide for ordinary citizens without so much as worrying about land productivity.

Leave the productivity to Commercial properties, industrial properties, spare the hard working and over-taxed citizens. These Singaporeans merely want a roof over their heads and stay alive. Give them a chance.

Imposing Shorter leases on HDBs will only make them more expensive on a per unit basis with Singaporeans having lesser and lesser “equity” (because they own less of a house, instead of a house with 99 years lease, they own one with 66 years lease) while paying higher and higher prices.

Eventually, shortages in supply whether deliberate or via constraints will drive up the prices of HDB with 66 years leases up to the point where people can still afford it, sapping up most of the household portion of disposable income. Eventually 66 years leases will rise to the price point set by previous 99 year HDB leases.

So the key to maintaining reasonable pricing is NOT giving you less of a HDB flat, but by creating a balance supply and demand condition to smooth out the prices.

Based on these reasoning, we totally reject Conrad Rai’s argument of proposing HDBs with shorter leases!

See below for Article by Todayonline.com where the writer proposed a 66 year HDB lease.

Why not 66-year HDB leases?
(source: Todayonline.com
www.todayonline.com/Print/Business/EDC110930-0000244/Why-not-66-year-HDB-leases)

Introducing some flats with shorter lease periods would make them more affordable
04:46 AM Sep 30, 2011
by Conrad Raj
The Ministry of National Development's decision earlier in the year to raise the supply of HDB flats is a step in the right direction.
The move to raise the income ceiling for buyers from S$8,000 to S$10,000 for Build-To-Order flats and from S$10,000 to S$12,000 for executive condominiums is another welcome response from the Government.
The Housing Board is expected to put on offer 25,000 new flats this year and another 25,000 next year to meet pent-up demand for public housing. While the promise of higher supply is said to have slowed down the pace of price rises in the residential property market, prices are still on the high side and public housing needs to be made still more affordable.
At present new flats are sold on a 99-year lease, good for more than three generations. What the Government does after that is anybody's guess, although in the case of HUDC property, the Government has topped up the leases of flats in estates that have gone private for a fee. Perhaps they will do the same with HDB flats.
But do all leases have to be that long? Perhaps the Government should look at providing flats with shorter leases to make them more affordable.
After all in China, leases on residential property are for 70 years.
In Hong Kong, nobody really knows what is going to happen when the Chinese government's commitment to let the former British colony remain autonomous ends. While new leases are normally for 50 years and may be renewed, what the Chinese government will do after 2047 is anybody's guess - yet the buying goes on despite the deadline being just 36 years away.
Although most financial institutions here rarely provide loans on properties with less than 70 years left on their leases, there is nothing in the books to prevent them from giving loans for properties with shorter shelf lives.
In fact according to a financier some financial institutions here do give loans for properties with as short as a 40-year lease.
"We look more at the ability of the borrower to repay the loan rather than the life of the flat," the financier said.
Just look at the resale market where HDB flats are being sold with more than 30 years of their lease gone.
I, in fact, bought a property at Dover Close East with less than 70 years of its lease left, and flats are still being bought and sold in my estate.
In theory if HDB apartments are sold on a 66-year lease basis, one third less than the present 99 years, they should go for a third less.
But of course the HDB might want to recover its building and other costs much faster and so the actual selling price of these flats might be higher, but it should not be very much more.
Whatever the actual cost recovery basis is, shorter leases should provide substantial savings for buyers, especially the younger crowd who have been in the job market for a shorter period and thus probably would have less savings in both their CPF and bank accounts.
This is not to say that all HDB flats should be sold on a shorter lease plan. Perhaps there should be a mix to allow people preferring the longer 99-year lease period a choice.
In any case, why not have leases for just 33 years (or whatever period the HDB is comfortable with) for those who do not want to pass on their property to the next generation, but want a more affordable flat?
After all the current 99-year period just follows convention elsewhere and is not cast in stone.
According to Wikipedia, the 99-year lease was, under historic common law, the longest possible term of a lease of real property.
Although no longer the law in most common law jurisdictions today, 99-year leases continue to be common as a matter of business practice and conventional wisdom.
Mortgage News Daily and other online sources further note that under traditional American common law, the 99-year term was not literal, but merely an arbitrary time span beyond the life expectancy of any possible lessee or lessor.
So, can we look forward to more affordable public housing in the near future?
Conrad Raj is Today's editor-at-large.