CNA Explains: Will the HDB Mortgage Rate Rise as Rates Rise?

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In the latest review by the CPF Board, released May 27, the three-month average of interest rates at major local banks from February to April 2022 was 0.09 percent.

If interest rates are going up now, could the HDB mortgage rate go up too?

Singcapital Chief Executive Alfred Chia said interest rates have been unusually low since the global financial crisis in 2008, with the Federal Reserve’s average historically at about 4 percent. It is now in the 2.25 percent to 2.5 percent range after the recent rate hikes.

Mr. Chia expects the Fed to hike interest rates to about 3.5 percent by the end of the year, but he doesn’t think savings rates here will rise sharply enough to affect the CPF-OA rate.

He pointed out that US interest rates rose to an average of about 5 percent in 2007 before the financial crisis, but CPF-OA rates still remained at 2.5 percent.

“There is a mechanism that results in a very stable rate for HDB owners. It won’t always be like this, but it’s been like this for over 20 years,” he said.

With inflation rising, there were questions in Parliament this month about whether CPF interest rates should rise to keep up, and Labor Minister Tan See Leng responded that the government is continuing to pay generous interest rates despite the low interest rate environment that hit the bottoms.

99.co’s Mr Chow said: “At present there may be pressure to increase the CPF Ordinary, Special and Medisave rate to keep pace with inflation. However, the downside would be that more homeowners would have to pay more for their HDB concession loans since their loan interest is tied to the ordinary account.

“The government will take this into account before deciding on any step.”

What else should home buyers consider when choosing HDB or bank loans?

But there are other considerations than the interest rate that you should keep in mind when taking out a home loan. Many first-time homebuyers should consider an HDB home loan if they qualify for it for other reasons, the experts said.

Mr. Chow said it was the smaller down payment compared to a bank loan. HDB allows homebuyers to borrow up to 85 percent of the property’s value, versus 75 percent for bank loans.

There is also an option to pay the HDB deposit with CPF and without cash. Bank loans, on the other hand, must be paid at least 5 percent in cash.

While taking out an HDB loan offers the option of switching to a bank loan, homeowners cannot convert their bank loans into HDB loans.

“The interest rate is definitely more stable over the long term,” Mr Chia said, adding that those who took out real estate loans from banks are now afraid of rising mortgage rates.

However, homeowners who buy older HDB units on a shorter lease may not be able to fully use their CPF to pay off the home loan, Mr Chow said. He advised buyers to check the exact amount on the HDB portal when buying older homes.

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