Thinking of refinancing your HDB loan? Wondering if you can switch to a bank loan now? Then this guide is for you.
When buying an HDB flat, there are many good reasons for homeowners to take up an HDB housing loan as their first home loan. For one, since homeowners are allowed to borrow up to 85% of the property value, the down payment is potentially more manageable.
Furthermore, interest rates are set to increase. The US Federal Reserve anticipate at least six more quarter-point hikes this year, with three or four more hikes probable in 2023.
With that said, if after a few years, you want a home loan refinancing option with lower interest rates, it is possible to switch from an HDB loan to a bank loan for more savings. In this article, we will guide you along the process and address the following:
Am I eligible to refinance to a bank loan?
Why would I want to refinance my home?
How do I switch from an HDB loan to a bank loan?
How long will the process take?
When Can I Switch from HDB Loan to Bank Loan?
Many ask, "Can I refinance my HDB loan?" To find out if you are eligible to refinance your home loan from an HDB loan to a bank loan, you need to consider many factors.
Mortgage Servicing Ratio (MSR)
Up to 30%
Total Debt Servicing Ratio (TDSR)
Up to 55%
Loan-to-Value (LTV) limit
Up to 75% for banks
Mortgage Servicing Ratio (MSR)
First, there is Mortgage Servicing Ratio (MSR), which refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. MSR is currently capped at 30% of a borrower’s gross monthly income.
Total Debt Servicing Ratio (TDSR)
Second, there is Total Debt Servicing Ratio (TDSR), which refers to the portion of a borrower’s gross monthly income that goes towards repaying monthly debt obligations, including property loans and the loan being applied for. The TDSR limit is currently set at 55% and below of a borrower’s gross monthly income.
Third, the bank’s Loan-to-Value (LTV) limit of up to 75% will apply when you switch over. So, if up till the date, you’ve not repaid at least 25% of your property’s purchase price (or valuation, whichever lower), you may need to top-up extra cash or CPF to bring it in line with the LTV.
For example, your HDB flat was $400,000 and you took the maximum loan of 85% from HDB ($340,000) when you bought it. It’s been quite a few years since, and so far, you’ve paid off over $40,000 to HDB. Including your initial down payment of $60,000, you’ve paid for over $100,000 or 25% of your property’s price and hence, can move your entire loan balance (75% or less) to the bank.
If you have not paid that much yet, you’ll still only be allowed to refinance, but you’ll still only be allowed to loan up to 75% from the bank, meaning you’ll need to pay the outstanding amount in cash/CPF.
Other HDB Refinancing Eligibility Criteria
Finally, you will also need to meet the other eligibility criteria set by the bank you're hoping to refinance to. For example, a minimum income criteria will apply, and it will vary depending on the amount the bank loan is for and whether or not you are buying the property on your own or with a co-signer.
If you satisfy all of the above, then yes, you are indeed eligible to switch from an HDB loan to a bank loan. Do note, however, that once you make the switch to a bank loan, you will not be able to refinance back to an HDB loan.
Tip: Interest Rates are Set to Rise in 2022, So Act Now!
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Should I Refinance My HDB Loan?
There is no one-size-fits-all answer to whether or not HDB refinancing is the best decision for you, but here are some factors to consider to help you decide.
HDB Rates Can Be More Stable, But Banks Offer Much Lower Interest Rates
One of the benefits of an HDB loan refinance is the stable interest rate, which is currently 2.6%. This rate is pegged at +0.1% of the CPF Ordinary Account rate, and hasn’t changed for over 10 years. However, while some may appreciate the stability, 2.6% is considered steep compared to the interest rates offered by banks, which have mostly been under 2% in recent years.
Although the difference may seem small at just over 1%, it really does add up over the years. This is usually the main reason why many homeowners choose to refinance their HDB loans as soon as they can do so without any cash outlay — it’s all about the significant savings.
There Are Home Loan Refinancing Promotions, Perks, and Incentives
In order to help customers minimise the cost of HDB refinancing, banks sometimes offer incentives on top of low interest rates. For example, many banks offer subsidies (subject to a clawback clause) to cover fees incurred during HDB refinancing, such as valuation and legal fees.
For example, let’s say the valuation and legal fees cost $214 and $1,600 respectively. The bank might provide $2,000 in subsidies for refinancing customers, which means that the cost of refinancing HDB loan is waived in such a case. However, banks sometimes offer these subsidies as a percentage of the loan amount, which means that you might still need to fork out a small sum of money in some cases.
How to Refinance HDB Loan to Bank Loan
1. Compare Mortgage Rates and Packages Available
If you are thinking on how to refinance HDB loan to bank loan, do your due diligence by assessing the packages available on the market. Comparing interest rates offered by different banks is one thing, but there are various perks and incentives (see above) offered as well.
If you find that you are overwhelmed with choices, this is a good time to reach out to a mortgage specialist from PropertyGuru Finance to help you out. They will help to advise you on the home financing that best fits your needs and guide you through the different interest rates, loan tenures, fees, and varying repayment terms that may be available.
2. One Step Closer to HDB Refinancing: Prepare the Necessary Documents and Apply
After finding a bank loan of your choice, you will need a list of documents on hand as part of the application process. They are:
Your NRIC or passport
Your HDB flat details, which can be obtained from the MyHDBPage
Your HDB financial information, which can be obtained from the MyHDBPage
Your latest outstanding loan statement, which can be obtained from the MyHDBPage
Your latest Central Provident Fund (CPF) Property Withdrawal Statement, which can be obtained from your CPF account
Your latest Notice of Assessment from Inland Revenue Authority of Singapore, which can be obtained from the IRAS MyTax Portal
12 months-worth of CPF transaction history, which can be obtained from your CPF account
Your payslips from the last three months
Your employment contract (only if you have less than three months of employment)
Tenancy Agreement and Stamp Certificate (only if you have rental income)
Yup, it's a pretty long list. But don't worry, if you need help, our mortgage specialists can help you organise the paperwork and save the hassle.
3. Valuation Assessment
Before the home loan refinancing application is approved, the bank will need to assess the value of your property. This will likely be done by a qualified surveyor or valuer sent by the bank itself. These are valuation professionals commissioned to ascertain a property’s market value based on a series of metrics, such as location, land size, property size, the age and condition of the property, etc.
4. Choose a Law Firm
There are a lot of complicated steps involved in refinancing HDB loan. Instead of handling everything yourself, almost all homeowners engage a law firm to do the complex work for them. These tasks can be everything from conveyancing and managing the necessary paperwork to reminding you of when to sign various documents. The typical fees involved should be around $1,500.
Related article: Mortgage Conveyancing: What Are Your Lawyers Doing for You?
5. Adjust your CPF Contribution (if applicable)
If you will be using your CPF savings for the monthly instalments it’s important to adjust the amount that is being paid. Your lawyer will assist you with lodging the monthly CPF repayment amount.
How Long Does Refinancing your HDB Loan Take?
The usual turnaround time for processing the switch to a bank loan is about one month.
Ultimately, even though the process might look somewhat complicated on paper, a lot of the heavy lifting is done by the law firm that you hire. Besides, considering the potential savings you get for refinancing from an HDB loan to a bank loan, this might be well worth your time.
Thinking of getting a bank home loan? Compare the best mortgage rates on PropertyGuru Finance, or contact us for more personalised advice and recommendations:
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More FAQs on Refinancing HDB Loans
Can HDB Loan Be Refinanced? Can I Change My HDB Loan to Bank Loan?
Yes, refinancing HDB housing loan can be done. However, since banks have an LTV of up to 75%, depending on how much of your flat you've paid off, you may or may not need to top-up in cash/CPF.
When Should I Refinance My HDB Loan?
You can refinance HDB loans any time, but most HDB homeowners refinance after 4 to 5 years. This is after they have paid off at least 25% of the property's value/price so that they would not need to pay any more cash.
Is There Any Lock-In Period for HDB Loan?
Unlike bank loans, HDB loan refinance do not have any lock-in period. You are free to redeem it or refinance your loan any time.
How Long Does It Take for A HDB Loan Refinance to Go Through?
How long HDB refinancing takes may depend on the volume of applications received by the bank, as well as their individual processing times. However, it generally takes 4 to 6 weeks to complete.
What Happens to Your Old Mortgage When You Refinance?
By refinancing, you are actually redeeming your mortgage with a new home loan from a new lender. For example, when you refinance your HDB loan to a bank loan, the bank pays off your HDB loan refinance for you. Subsequently, you no longer owe HDB any money. Instead, you owe the bank.