HDB housing plan and types mortgages available in Singapore
80% of Singapore young population lives in government-built flats. What is the reason behind such a high percentage? Well, Singapore Housing and Development Board (HDB) is the government department behind the irresistible house subsidies. Unlike majority of other countries where they show off their public-housing project, none is quite devoted as Singapore. HDB was formed in 1960 and is responsible for city planning. The agency started by building rental housing for needy families but now has switched to building apartment for sales to the general public.
Currently, there is about 1m apartment. Most of these are apartments cluster around two dozen new towns encompassing the coastal city core. When constructed, the government sold them to first time home buyers at a lower than market price. However, a successful applicant must wait an average of 3 years for their houses to be completed.
Alternatively, Singaporean can opt to buy existing HDB apartment directly from the previous owners at whichever the price the seller deem fit. A three-bedroom flat built this year in an outlying suburb cost $270,000 on average. First time home buyers get the house with $75,000 off the purchase price. Buying a similar house built by private developers can cost three times as much.
How does the government come up with the fund for such houses?
The money Singaporeans use to buy houses in subsidized flats is part of Central Provident Fund (CPF). This is a mandatory national-0saving scheme into which majority of working citizens must pay 20% of their salaries per month to facilitate. For employers, there is a further 17% to contribute. Citizens are allowed to down a portion of their savings to use as deposits when buying HBD apartment. There are also cheap mortgages provided by HDB.
By many measures, the HDB system is a massive success as proved by virtually no homelessness in Singapore. The apartments are drab in looks, but they are clean, safe and spacious enough. The HDB housing is affordable compared to accommodation in London, Hong Kong, and other major cities. In return, the treasury gains something to pool at the national treasury. IN 2016/2017 the project contributed to 2.4% of the national budget.
Politically HDB is one of the major reasons why People’s Action Party is still in power. Admirers say that it’s no surprise that the party has won peoples votes and trust by providing them affordable housing. The HDB system is also a way to keep Singaporean n check. Strict rules must adhere to those who seek to buy the HDB flats.
There are limitations to such projects of course. Besides the strict rules, people sometimes wonder, what would happen if youths pour their cash into business and not into the HDB mortgage? For such and other reasons let’s have a quick look at types of mortgages in Singapore to consider if you opt out of the government subsided houses.
There are two main categories of home interest rates; floating interest rates and fixed interest rates. Fixed rates mean the rate remains the same over the duration of the loan term. The fixed rate is higher than variable rates as bank take on the risk of inflation.
Fixed Rate Mortgages
These types of loan plan have a period of up to 5 years to clear. Depending on the plan you choose, you will incur a 1% plus rate. Payment is made monthly regardless of the interest rates fluctuation. Fixed rate mortgage offers predictability and stability especially in a country such as Singapore where the inflation rate is projected early and in most time, constant.
SOR Pegged Mortgages
SOR abbreviation stands for Swap Offer Rate.
To spare you the jargons of the whole meaning, SOR is a UD dollar funding where there is swapping of Singapore dollar funds for US dollar at a specific cost for a certain tenor, usually 1/3/6/12 months. The mortgage benefits from advantages given by the US Federal Reserve at a rate of between 0 and 0.25%. The only disadvantage of this type of mortgage is that the funds are in foreign currency and can influence the SOR rate.
Sibor Pegged Mortgages
SIBOR is an abbreviation for Singapore Interbank Borrowing Offer Rate. This is a transparent borrowing rate that gives inform the consumer what the interbank market interest rate us and the cost of borrowing. The SIBOR is publicly available on the web, Business Times and Teletext. Sibor rates are regarding 1/3/6/12 months. The longer the tenor, the higher the interest rates.
Combination of Sibor and SOR mortgages
The mortgage offers unique proposition of using both SOR and Sibor mortgages. Some banks will switch between the two while they take advantage value of the mortgages plus a certain spread of your mortgage plan.
HDB loan mortgages
The loan is offered to HDB properties only. The current HDB mortgage rate stands at 2.6%, higher that plans provided by banks in Singapore. However, HDB mortgage offers a higher financing quantum compared to banks.
Interest only mortgages
This mortgage service the only interest on the mortgage. It is not allowed for residential properties. The financing of this type of loan is higher than standard mortgage plan. It is also available for commercial and International property loans
Board Rate mortgages
The mortgage is a bank own internal interest rate mechanism. Compared to SOR and Sibor, there is less transparency on how the bank arrived at the mortgage rate and pricing of your mortgage. Considering the insufficient transparency, some banks no longer offer Board Rate. Other have adopted standard universal Board rate system to improve transparency. In the recent past, the board rate mortgage packages have stabilized and may offer consumer with a value proposition for consideration.
If you plan to take a loan in Singapore, it’s advised that you compare all the rates using home loan interest calculator. Put the principal into consideration plus the monthly installment and see how much in total you will pay at varying loan terms. You can use the calculator only if you know the current rate offered on a different type of loans.
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