Do I really have to take a 25-year loan when I buy a new flat?
Posted on 08 Sep 2015 |
In August 2013, the maximum tenure for HDB housing loans was reduced from 30 years to 25 years to encourage greater financial prudence. While a longer loan period results in smaller monthly repayments, it also increases the interest paid over time. Capping the maximum loan period to 25 years is a good balance for most flat buyers.
Buyers who take an HDB concessionary loan can choose to shorten their loan repayment period by making lump sum payments at any point in time.
In 2014, new flat buyers generally used on average 22% of their monthly household income to service their monthly instalments, despite the shortening of the maximum loan tenure to 25 years. Even if these families had chosen a 20-year loan instead, they would use on average 26% of their monthly household income to service their monthly instalments.
This is well below the rule of thumb of 30% for affordable housing, and would also mean that typical flat buyers could service their mortgage using CPF, with little or no out-of-pocket cash payment. Going forward, the affordability would improve further with the enhancement in the SHG from Aug 2015.
HDB will continue to monitor the housing market to ensure that public housing remains affordable, especially for first-timers and lower-income families. Flat buyers who make prudent housing choices and take up HDB’s generous housing grants will find that new flats are within their reach.